Canadian Vending

Features Payment Technology
From the Editor: October 2008

Give No Credit

October 29, 2008
By Cam Wood


Recent attention paid to the hidden costs of credit card usage may not strike some vending operators as earth-shattering news.

Recent attention paid to the hidden costs of credit card usage may not strike some vending operators as earth-shattering news.
    North America, particularly in our industry, has lagged behind places like Asia and Europe in acceptance of credit payment systems for low value transactions. The technology exists, but the major obstacle has been, and remains, the cost of doing business for the vendor.
    Many consumers believe that credit card fees are those applied to their transaction – the interest that shows up if the purchase remains “on credit” beyond the payment period. Many already recognize that Canadian consumers already pay the highest credit card fees in the world.
It’s those visible fees that act as a cultural barrier to progress. At Canadian Vending, we’re not entirely convinced the public at large wouldn’t be willing to change their habits, given the right vehicles for the transaction to occur. Numerous new credit offerings are now available for the approved consumer – reducing some interest rates from the frightening 27 per cent (on retail specific cards) to one per cent.
But that said, we also recognize that what isn’t as readily understood beyond the retail world is the cost for businesses to accept credit payment – the interchange fees.
Interchange fees were introduced in the 1960s, when all credit transactions at the retail level were done manually. The costs were designed to account for the manpower involved in the process. However, today – thanks to the computer – only 13 per cent of the interchange fee is used to cover processing costs. The rest, according to Merchants Payments Coalition, goes to cover credit card companies’ junk mail campaigns.
According to the Canadian Federation of Independent Business, interchange fees hit all of us to the tune of $4.5 billion a year. For every $100 spent on credit by a consumer, $2 goes directly to the credit card companies.
How that two per cent is recovered is also why some merchants just don’t bother – these fees cut into profit margins or are applied to the consumer price points for cost recovery.
And the processors are seeking a hike this month.
This move has infuriated Derek Nighbor, vice-president of national affairs for the Retail Council of Canada. He has openly demanded an answer from credit card companies as to why the fee is percentage-based, when it costs the same to process a $1 transaction as it does a $100 transaction.
The CFIB, RCC and its American counterparts are putting the pressure on the politicos as an election issue, hoping to gain some ground on changing the way credit transactions are handled in a retail exchange.
Without action on creating a more competitive credit market in North A merica, we can be guaranteed that consumers will, yet again, be on the receiving end of another type of transaction.

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