Interchange Fees Are Being Challenged On Pin Debt Cards



 


Canadian banks who issue PIN debit cards on Visa and MasterCard networks will now be charged fees. The Canadian Federation of Independent Business has announced that there will be a flat interchange fee for this issuance. If Visa and MasterCard begin to issue debit cards that are in direct competition with the Interac debit cards, what will it mean for consumers?

Interac is currently the lead system which processes debit cards throughout all of Canada. The majority of Canadian banks therefore issue this card out more than any other type of card. Consumers are walking around with Interac debit cards in their wallets.

About 40% of the market share belongs to Interac payments. The remaining 60% belongs to credit card payments. A poll was conducted with many merchants throughout Canada. The majority of merchants prefer to accept debit payments over credit payments. The reason for this is because of the reduced merchant fees that need to be paid on the transaction. Credit cards are often used because it provides the user with a variety of perks, such as air miles or cash back. The problem is, there are higher transaction fees for the merchant to pay.

Since Interac has been the lead system for so long, Visa and MasterCard each have decided it's necessary to begin competing with the system. As a result, they wish to offer another version of a debit card. This card of theirs would run on their own credit card network as opposed to the Interac network.

The problem with this is that many Canadian merchants are fearful that the Visa and MasterCard debit cards would end up costing them more in merchant fees to accept as opposed to Interac cards. This could play a significant part in the way merchants accept credit or debit cards in general.

Small businesses need to be concerned about this change. The impact of the new debit cards entering the market could affect them in a number of ways, including the additional costs. The Canadian Federation of Independent Business is trying to look out for small businesses in this regard. They are lobbying to the Canadian government to ask for regulation of fees. This would require Visa and MasterCard to charge just a flat interchange fee per transaction made.

Consumers are the pawns used in the games played by credit card companies to increase merchant fees. They do not know what is being charged to the merchant because they don't have to pay it. Therefore they may be getting a great deal to get the new debit card without being made aware of the impact it will have on the merchants.

What consumers will notice is an increase in goods and services. The reason for this increase is because the merchants will need to pass down the costs to the consumers to make up for the fees. The change will result in a higher merchant charge which will be similar to what merchants are paying in credit cards. Since they are no longer getting a relief with someone paying with a debit card, they will have no choice but to pass those added costs on to the consumer.

Right now, Interac and credit card company fees that are charged are not disclosed to the consumer. They are simply hidden in the price of goods and services that are purchased. Merchants cannot disclose any of these fees on receipts or anywhere else.

Should the Canadian government decide to regular these fees at the suggestion of the Canadian Federation of Independent Business, Visa and MasterCard could only charge a flat fee for each transaction. If, however, they are allowed to continue with a fee percentage as they currently use for credit cards, Interac could do the same. There would be no way to stop Interac from changing to the same format, which means that merchant fees would go up significantly because of the number of people who currently have Interac.

The new debit cards are going to be bad news for merchants and ultimately consumers if the government doesn't intervene. The higher fees to the merchant are going to trickle down to the consumer. Before anyone realizes it, both parties will be paying a significantly larger amount per year than in the past – all because of a percentage based fee instead of a flat fee. So while the consumers may not know about the merchant fees, they will see an increase in goods and services.






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