Businesses accepting plastic payment are in for a point-of-sale gouge from credit card companies and the banks supporting them, warns Catherine Swift, president of the Canadian Federation Independent Business (CFIB).

“Over the past few months, credit card companies have been introducing new types of cards, such as those referred to as Premier, Mosaic or Infinite cards, usually offering a special set of benefits to consumers who spend a certain amount of money,” explains Swift in a letter to the lobby group’s 105,000 members.

“Consumers have not requested this – it has been completely initiated by the credit card companies with a wink and a nod from the issuers – Canada’s financial institutions.”

The problem, she writes, is these new credit cards, once identified as “high spend” can spark higher merchant fees without the merchant’s knowledge.

“Needless to say, credit card companies will be making a lot more money for what is effectively the same service,” she said.

Similarly, changes are also coming to debit transactions, she adds, which have seen increased popularity since being introduced in 1984.

“Canada has long operated with Interac, a co-operative venture among banks, credit unions, payment-related companies and others, as the principal clearing house for debit transactions at comparatively reasonable cost to consumers and merchants,” she explains.

“VISA and MasterCard now want in on the action in Canada and are trying to convince the banks to support them with the promise of greater fee income.”

In the U.S., Visa and MasterCard issue cards that act as both debit and credit cards. In most cases, debit transactions also attract the interchange or percentage rate, not the minimal flat fee currently charged by Interac.

“We believe that if VISA and MasterCard were to bring the same service to Canada, debit rates would go up dramatically,” says Swift.

“Therefore, VISA and MasterCard will make a great deal more money than has been charged in the past by Interac’s flat-fee approach, with no extra value accruing to the merchant.”

As an example, a transaction of $1,000 would now cost about 6.5 cents, she cites. Using the current U.S. average fee of 0.65 per cent, the charge would become $6.50, representing a fee hike of almost 10,000 per cent.

“Not surprisingly, these developments have taken place under the radar to date as serious scrutiny would raise opposition to the plans,” she continues.

“As VISA and MasterCard dominate the credit card business, they are used to calling the shots with little if any push-back from customers, governments or other players as they have no competitors.”

Kelly Doran, president of Encore Telesolutions, Simcoe County’s largest tele-reception service, says increased merchant fees will directly impact the consumer, contrary to Swift’s comment that “consumers won’t care because they will not be assuming any costs.”

“That’s just not true,” she says. “It will affect the consumer. If we’re paying 65 cents now and it goes up to $6.50, that’s just going to result in an increase in our pricing – the cost has to be covered.

“It’s frustrating the banks think they can just stick it to us again, but individual businesses have little power against the banks.”

As a member of CFIB, she’s glad to have the organization’s support.

“It’s funny, I just got a letter saying they’re sending me a new credit card that comes with all these extra benefits,” Doran reports.

“Now, I might have to call them back and say ‘keep your card, I’m not so sure about that.’

“Maybe it goes along with the (adage): if it’s too good to be true, maybe it is.”

Swift says the CFIB has launched an aggressive campaign to make these developments public, better understand their implications and protect the small-business sector from massive cost increases.

The CFIB will be bringing its concerns and suggestions to politicians of all parties and the appropriate government officials. They have already met with officials at the finance department in Ottawa.

“They need to realize this is a wrong-headed initiative at any time, but with a softening economy, it makes matters even worse.”