Competition Bureau Alleges Anti-Competitive Conduct by Visa and MasterCard

Backgrounder

May 8, 2012


Although credit cards are part of our everyday lives as consumers, Canadians are largely unaware of the significant costs merchants incur by accepting Visa and MasterCard credit cards. Each year, Canadian merchants pay more than $5 billion in hidden credit card fees on Visa and MasterCard transactions. Those significant fees are reflected in higher prices paid by all Canadian consumers, including customers who do not even use credit cards, and pay with less expensive methods of payment such as an Interac debit card or cash.

Credit card fees in Canada are among the highest in the world. Canadian merchants who accept Visa and MasterCard credit cards must pay a fee from 1.5 to more than 3 percent of each purchase, nearly twice as much as their counterparts pay in Europe, New Zealand and Australia, but slightly less than in the United States.

By contrast, the card acceptance and processing fee paid by merchants in the case of an Interac debit transaction is a flat fee of approximately 12 cents, regardless of the value of the purchase. To provide a practical example, a 2.5 percent hidden fee on a $200 barbecue is $5, but if a debit card is used for the same purchase, the fee is 12 cents. The credit card cost is more than forty times higher than the debit card cost.

To protect the more than $5 billion in hidden credit card fees paid by Canadian merchants each year, Visa and MasterCard have imposed on merchants a number of rules that harm competition. The rules challenged by the Bureau prohibit merchants from encouraging consumers to consider lower-cost payment options such as cash or debit, and prohibit merchants from applying a surcharge to a purchase on a high-cost card. Further, once a merchant agrees to accept one of Visa or MasterCard's credit cards, that merchant must accept all credit cards offered by that company, including cards that impose significant costs on merchants, such as premium cards. Because retailers cannot charge a higher price for higher-cost premium credit cards, even though they are substantially more expensive than other methods of payment, merchants are forced to increase prices for all customers in order to reflect the more than $5 billion in hidden credit card fees paid by merchants each year.

Because Visa and MasterCard's anti-competitive rules prevent merchants from encouraging customers to use lower-cost payment methods, Visa and MasterCard are able to maintain high prices for their services, prices that are passed on to all consumers. Removing the anti-competitive rules will introduce some competition between Visa and MasterCard to secure merchants, which will in turn lead to lower credit card costs for merchants and lower prices for consumers.