Survey: Many Small Businesses in Canada Considering Credit Card Transaction Surcharges for Consumers

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Canadian merchants now have the ability to surcharge on credit card transactions to offset credit card processing fees, and nearly one in five (19 per cent) small businesses are considering it, according to a survey by the Canadian Federation of Independent Business (CFIB).

The survey also found that 26 per cent of CFIB members said they will do it if their competitors or suppliers do. More than one-third (40 per cent) of small firms said they are not sure yet if they will surcharge, while 15 per cent said they don’t intend to do it.

“Most smaller merchants are still on the fence or don’t plan to surcharge as they don’t want to risk losing customers. However, it’s important for them to know they will have this option,” said Corinne Pohlmann, Senior Vice-President of National Affairs at CFIB. 

Corinne Pohlmann

“Small businesses have long been dealing with expensive credit card processing fees and trying to find ways to absorb the cost of accepting premium cards without the ability to surcharge or refuse those cards. Surcharging gives them the ability to offset some of their costs and be transparent with their customers about the fees they pay.”

When asked about surcharges, retail expert George Minakakis said: “My response will be very blunt. This feels like shaming consumers for not using cash or debit cards. When do retailers start charging for that as well? If you want to build loyalty, this is a bad idea. As a retailer from large corporate chains, passing on surcharges to consumers for credit card use is not good business. 

George Minakakis

“If we take the restaurant industry as an example tipping now has options of up to 30 per cent and add credit card surcharges into this and you will have consumer dissension. What’s next? Pay a portion of the hourly wages? Asking consumers to understand this situation of conducting business when they personally incur debts on credit cards with high interest rates, just makes no sense,” said Minakakis, who leads advisory firm Inception Retail Group and is author of  The New Bricks & Mortar, Future Proofing Retail.

“What this will do in this looming recessionary and inflationary economy is push more consumers to buy online, look for lower pricing and visit stores even less. It is clear businesses are struggling coming out of the pandemic and into an economic fire, is a challenge. A little over 50 years ago credit cards were the saving grace for retailers. Consumers had a means to buy more. Squeezing consumers to cover your costs which have always been built into pricing, signals retailers are not ready for the future. My advice is to build it back into pricing and do a better job sourcing and selling higher quality products and services that are in demand. That’s what successful retailing has always been about!” 

Retail specialist Bruce Winder, author of RETAIL Before, During & After COVID-19, described the idea of credit card surcharges as a complicated issue. 

Bruce Winder

“Although one can argue that on paper it can make financial sense for consumer-facing businesses such as retailers and restaurants to pass on the fees, it could anger customers at a time when prices are already at a 40-year high,” said Winder, a retail analyst, consultant and President of Bruce Winder Retail. “I think the ability to successfully pass on the fee and maintain volume will be dependent on each specific business’s market power and degree of competition as well as how competitors react to the opportunity to pass on the fee. Get your game theory hats on.

“One can argue that independent retailers and restaurants may receive more leeway from customers as they have been struggling so much from the pandemic while large chains have prospered. 

“Either way, I would tread lightly if I were a retailer as this could be the proverbial straw that breaks the camel’s back and sends customers elsewhere.”

The CFIB said that as a result of the recent class action settlement small businesses were given the power from Mastercard and Visa to add a surcharge on some credit card transactions of offset merchant fees. Due to consumer protection laws in Quebec, this option will not be available in that province, said the CFIB.

It added that businesses that often sell to other businesses (B2B), like construction, manufacturing and finance/insurance, were most likely to report they will surcharge for credit card usage, while businesses that serve consumers were less likely to say they will do it. Among consumer-facing sectors, a total of 19 per cent of hospitality (e.g. restaurants), 17 per cent of personal services businesses (e.g. salons) and 12 per cent of retailers intend to surcharge.

Dan Kelly

“These data reveal the frustration so many business owners feel about the high cost of credit card processing, which can eat about 1.5 to 2.5 per cent of every sale,” said CFIB president Dan Kelly. Currently, 35 per cent encourage customers to use other forms of payment and 28 per cent said they increase their prices to absorb credit card fees.

“The power to surcharge will allow merchants to address their rising operating costs, push back against future credit card fee hikes and keep their prices competitive. With mounting pressures small businesses are facing due to inflation and government-imposed costs, surcharging is another way to reduce their cost burden.”

The CFIB said merchants can now apply to surcharge by registering their plans with their credit card processor and Mastercard (Visa requires registration with the processor only). Once they have registered their intent to surcharge, merchants must then wait 30 days before they can start to apply a surcharge on Visa and Mastercard transactions.

The CFIB is providing detailed information for merchants which can be found here

Article Author

Mario Toneguzzi
Mario Toneguzzi
Mario Toneguzzi, based in Calgary, has more than 40 years experience as a daily newspaper writer, columnist, and editor. He worked for 35 years at the Calgary Herald covering sports, crime, politics, health, faith, city and breaking news, and business. He is the Senior News Editor with Retail Insider in addition to working as a freelance writer and consultant in communications and media relations/training. Mario was named as a RETHINK Retail Top Retail Expert in 2024.

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