Visa and MasterCard’s Anti-Competitive Rules
May 8, 2012
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.
Credit Card Issuers
- 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
- 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
- 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
- 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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