Visa and MasterCard’s Anti-Competitive Rules
Credit Card Networks
- Visa and MasterCard operate the two largest credit card networks in Canada.
- Through their networks, Visa and MasterCard provide infrastructure and services such as authorization and settlement of transactions for customers who pay using their respective network's brand of credit cards.
- Financial institutions, such as banks, credit unions and caisses populaires, issue credit cards in Canada.
- The issuers set annual credit card fees and interest rates charged to card holders and determine reward levels for programs like Air Miles and "cash back".
- Acquirers are the companies that supply credit card network services to merchants.
- This includes authorization and processing of credit card transactions, as well as point-of-sale services, such as credit card terminals.
The Fees and How They are Collected and Shared
Card Acceptance Fee
- Card acceptance fees are paid by merchants each time a customer pays for a good or service with a credit card.
- The fees are a percentage of the purchase price paid to the merchant by the customer.
- Fees range from 1.5 to more than 3 percent of each purchase, and are higher on premium credit cards.
- Fees are distributed in different proportions to the credit card network, the issuer and the acquirer.
- The card acceptance fee has three components: the network fee, the interchange fee and the service fee.
- The interchange fee is the amount retained by issuers, such as banks and financial institutions.
- The interchange fee is the largest fee, representing 80 percent or more of the total card acceptance fee.
- Increases in interchange fees have consistently resulted in increases in card acceptance fees.
- The network fee is the amount retained by Visa or MasterCard.
- The service fee is the amount retained by acquirers who process the transactions for merchants.
Visa and MasterCard rules contain numerous anti-competitive restraints including:
- The no discrimination rule prevents merchants from treating a customer who presents a certain credit card less favourably than a customer who presents a different credit card.
- The honour-all-cards rule requires merchants to accept all credit cards from a specific network, including premium reward cards with higher card acceptance fees.
- The no-surcharge rule prevents merchants from charging a fee on transactions made with Visa or MasterCard credit cards.
- This forces merchants to embed credit card transaction fees in retail prices.
- The no surcharge rule prohibits merchants from setting prices that reflect the actual cost of the payment method chosen by the customer.
- Section 76 of the Competition Act allows the Competition Tribunal, in certain cases, to prohibit an agreement or contract that influences prices upwards or discourages the reduction of prices.
- Canada has among the highest Card Acceptance Fees in the world.
- Canadian merchants that accept Visa and MasterCard credit cards pay a card acceptance fee from 1.5 to more than 3 percent of each purchase. Meanwhile, processing fees in most other countries are significantly lower.
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