Canadian Pizza Magazine

The price of premium

By Stephanie Ortenzi   

Features Business and Operations Marketing

Credit card fees: The rocks, the hard places, and how business pays

For more than 40 years, credit card companies have collected fees on
sales because they can offer consumers and merchants the value of

For more than 40 years, credit card companies have collected fees on sales because they can offer consumers and merchants the value of convenience. Consumers may gripe about high interest rates while watching their credit card balances grow, and merchants may complain about how much passive income credit cards companies are amassing, but in the end, consumers don’t have to worry about having enough cash on hand, and merchants benefit from the credit cards’ ability to facilitate impulse buying and to make it easier to upsell.

It’s been found that some pizzerias don’t even know their fees until they get their bills. Would this chef be smiling if he did?


Over the decades, credit card fees may have stayed relatively stable, but in the last three years, the fees connected to premium credit cards have nearly doubled. Premium credit cards offer the holder a range of rewards, points and deals, depending on which bank issues the card. VISA’s “Infinite” card is issued by RBC, Scotia Bank and CIBC, but Scotia Bank, which has 15 premium cards, is so strong on its cash-back feature, that it’s easy to see why consumers want to use premium cards as much as they do. A “Scotia Bank Momentum VISA Infinite” card gives the consumer four per cent cash-back on all grocery store purchases, two per cent on drug store purchases and recurring bill payments, and one per cent on all other eligible purchases. Those “rewards” are clearly quite valuable and quickly add up. Merchants can’t refuse to accept the premium Visa, MasterCard and American Express cards, and their contract doesn’t allow them to pass on the fees to consumers, a practice known as “surcharging,” ostensibly because it reflects poorly on credit card companies.


“If you refuse to take the premium card, you can’t take the regular card, and you can’t really do that because you risk losing the sale,” says Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB). “But the [potential] power to surcharge keeps credit card executives up at night,” says Kelly, “because it would give merchants the power to push back.” Kelly doesn’t believe merchants would use it often, because they don’t want to make their customers pay more, “but it would level the playing field.”

“Surcharging is just a way for merchants to pad their profits,” says Bruce Cran, president of the Consumers Association of Canada (CAC). He opposes surcharging based on the Australian model, which permitted surcharging in relation to premium credit card fees for the last 15 years. In his view, surcharging is responsible for the 10 per cent hike the taxi industry charges. “The airline industry is another sector that loves to jump on the surcharge,” he adds.

For a further bite out of the bottom line, fees are calculated on top of the taxes merchants are obliged to collect for the government. And in the case of foodservice, where the customer has added a gratuity to the bill, the charges are calculated on top of that amount as well, with the merchant paying fees on top of nearly 30 per cent of the sale, not a penny of which is even a sale of goods or services.

“It adds insult to injury,” says Garth Whyte, president and CEO of the Canadian Restaurant and Foodservices Association (CRFA). He describes this fee collection as “raising costs by stealth.” Whyte adds that a lot of his members don’t even know their costs until they get their bills.

“My wife handles that,” says Romolo Salvavi, owner of Toronto’s Via Mercant pizzeria. “I don’t like it,” he adds, “but what can I do?” Salvavi says he’s decided to ask his customers how they’d feel if he decided to stop taking their premium cards and then decide what to do, if anything.

Dan Mitchell wasn’t aware of the fee increases either. He owns Famous Peppers in Prince Edward Island. “I’ll have to look into how many of my customers are using premium cards. If it’s only one per cent, it’s not worth pissing off the other 99 per cent,”
he says.

In Woodbridge, north of Toronto, Maurizio Galifi has opened his second Marcello’s Pizza. He takes all cards, including American Express. He says he hasn’t really seen many of the other premium cards. “If accepting these cards will attract new customers,” says Galifi, “it all works out in the end, but I don’t like it.”

“The credit card industry is incredibly opaque,” says Kelly. “It’s one of the murkiest industries in Canada.” As a counter measure in 2010, Kelly helped marshal the creation of a voluntary Code of Conduct about fair competition practices for the credit and debit card industry, hoping to help increase transparency around fees, for the protection of both business and consumers.

As a voluntary code, it’s limited, but it did lead to presenting the issue as a complaint to the Competition Bureau of Canada in December of that year. The bureau investigated the merit of the complaint and decided it was a valid issue to be heard by the Competition Tribunal. For nearly two years, the tribunal took statements from industry experts, advocates, credit card companies and banks, including surprising requests by banking lawyers to redact some banking information to regain some corporate secrecy for their clients.

The results of those specific requests are pending, and at the time of this writing, the tribunal has not made any decision on the competition constraints Visa and MasterCard still hold over merchants. The progress of the case can be found at , under case number CT-2010-010. The last word from the tribunal is its declaration on March 7, 2012, that the final arguments would wrap up on June 21, 2012 – over a year ago

Although the tribunal is an independent, non-governmental body, the Stephen Harper government is also getting a taste of this issue. Bill S-215, which is about credit card fees, is approaching its second reading in the Senate. Federal NDP Finance critic Glenn Thibeault is working on strategies for introducing a private member’s bill for the House of Commons the end of this year.

How powerful could merchants be if they banded together? Last August, a U.S. class action suit forced Visa and MasterCard to pay retailers US$7.25 billion in cash and to temporarily reduce fees. Economists calculate that Canadian retailers paid out from $5 to $8 billion dollars to credit card companies last year.

In any other sector, that kind of spending affords a lot of market and negotiating clout, but not when it comes to credit cards. Whyte says his role is to keep applying pressure.

“We won’t quit and we won’t go away,” he says. On May 1, Whyte and the CRFA succeeded in winning a new dairy classification for mozzarella cheese to be used in fresh pizza making, which will help bring more fair pricing for foodservice operations more in line with the lower prices paid by frozen pizza manufacturers. It took over 10 years. “It’s never done until it’s done,” says Whyte, referring to agreements that needed to be signed by all provinces and territories. And still, it got done.

Stephanie Ortenzi ( ) is a Toronto-based food marketing writer.

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