"The Cost of Accepting Credit Card Payments: NA vs EU" - article about interchange fees | Credit card reward programs | Discussion forum

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"The Cost of Accepting Credit Card Payments: NA vs EU" - article about interchange fees
April 4, 2021
1:01 am
User230
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https://www.valuepenguin.com/interchange-fees-na-vs-eu

The article is from an American perspective.

Interesting bits for me:

-France has the lowest interchange fees in Europe at around 0.2%

-Britain is trying to limit the interchange fee to around 0.3%

-Canadian Mastercard purchases average 1.89%

-Average interchange fee in Canada is 1.78%.

Another interesting article:

https://www.mentalfloss.com/article/619285/why-costco-only-accepts-visa-credit-cards

Also, from an American perspective. Interesting bit from the article:

-Costco was rumored to have negotiated a 0.4% interchange fee.

Not sure how the card has so many perks and high percentage cash back categories with an interchange fee like that for Costco purchases in the USA.

Interesting to see that a big retailer can negotiate a 0.4% interchange fee with Visa in the USA. Where small businesses in Canada are stuck with 1.89% interchange fees on average for Mastercard payments.

Maybe the small business can band together and negotiate a lower interchange fee?

The article also talks about why Costco only accepts Visa.

April 4, 2021
2:54 am
Loonie
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I haven't read the articles. Thanks for the summaries.

It would seem to me that if some countries are showing very low interchange fees, then the cards in those countries must also offer few perqs. I have heard that this is so. It is also my understanding that in Europe debit cards are much more prevalent, so the competitive position for MC and Visa is different. But I haven't been to Europe for quite a few years.

It would certainly create more of a level playing field here for smaller businesses if their fees were also very low, but that would mean few or no perqs with our cards. Canadians have become wedded to their CC perqs, so it's not likely to happen.

I would be willing to give them up if interchange fees went down sufficiently, but the problem is that prices, which are pegged to include them, will not go down. Unfortunately, I think they will charge the same regardless, and point to some other cost that is driving up prices. Alternatively, some small businesses now refuse to take credit cards because of these fees, and some only take cash.

Edit, after reading articles: The CC companies can't blame the high fees on Canada being a small country either. Hungary pays 0.3% and has a pop of about 10 million.
The first article makes it very clear that a major reason why some of these fees are so much lower elsewhere is because of gov't regulation. There is not a snowball's chance in hades of that happening here or in the US, where the gov't shamelessly kowtows to bank lobbyists. However, note that CRA doesn't accept CC payments. They aren't as stupid as they sometimes look!

April 4, 2021
8:38 am
smayer97
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Except Costco Canada only accepts Mastercard, so don't know how this interchange fee works in that context. I always thought that the interchange fee for all the cards I have (and I have dozens) all charge 2.5%, with a couple of exceptions.... Rogers Bank MC gives 3% cash back for US transactions and one of my cards (can't remember which right now) charges 0%. But all are subject to the exchange rate set by the credit card company, which does not necessarily match the Canada or market Exchange rate, so is there monkey business with that?

April 4, 2021
9:41 am
Norman1
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The interchange fee charged on the merchant side is different from the 2½% foreign exchange fee changed on the cardholder side.

The Canadian interchange numbers are not accurate. MasterCard Canada and Visa Canada had agreed to an average interchange of 1½%. In August 2018, they agreed to a lower average interchange of 1.4%.

April 4, 2021
9:55 am
Norman1
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Loonie said

I would be willing to give them up if interchange fees went down sufficiently, but the problem is that prices, which are pegged to include them, will not go down. Unfortunately, I think they will charge the same regardless, and point to some other cost that is driving up prices. …

Prices could go down. But, I think lots of the merchants will just pocket the savings.

Merchants have always been free to offer discounts at the checkout for different payment methods. But, I've yet to see a sign at the checkout that says 2% off for debit or cash.

Cardholders and merchants can't have it both ways at the same time. Cardholders can't have 1% to 2% cashback while merchants pay an interchange to the card issuers of only 0.2% to 0.4%.

April 4, 2021
4:25 pm
Loonie
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Norman1 said

The Canadian interchange numbers are not accurate. MasterCard Canada and Visa Canada had agreed to an average interchange of 1½%. In August 2018, they agreed to a lower average interchange of 1.4%.  

It's not necessarily that they are inaccurate per se, but they are out of date. If you read further into the article, it is clear that it was written in 2015 or possibly earlier. Fees may have gone down since then, and we have also seen rewards decreased. However, I haven't noticed retail prices or the annual fees for these cards decrease!

April 5, 2021
12:29 am
User230
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Loonie said

It's not necessarily that they are inaccurate per se, but they are out of date. If you read further into the article, it is clear that it was written in 2015 or possibly earlier. Fees may have gone down since then, and we have also seen rewards decreased. However, I haven't noticed retail prices or the annual fees for these cards decrease!

Correct. It is out dated. Sorry.

Here is a recent article about Brexit causing interchange fees to likely rise in Britain. Anytime Visa or MasterCard have a chance they seem to raise interchange fees:

https://eminetra.co.uk/visa-plans-to-raise-fees-after-brexit-withdrawal-of-eu-cap/361850/

Summary:

-EU regulations no longer apply to British interchange fees

- Scheme fees between the EU and Britain are to increase to 1.5% from 0.3% and debit card interchange fees to 1.15% from 0.2%.

- "Commercial interchange fees" will increase as well. They are the fees corporations pay to use corporate credit cards among other financial products offered to corporations.

-These changes are for the VISA Credit Card network. MasterCard also did something similar earlier.

The article also says:

"Both Visa and Mastercard emphasize that card issuers do not directly benefit from the higher exchange fees they use to finance new products and fight fraud."

A 5x higher fee to increase fraud protection and to fund new products...

The British people talking about it on the Reddit forum think its a cash grab.

There are also some interesting articles about recent interchange fee increases in the USA being delayed again. Possibly due to political pressures. I will not bring it up here as this post is already to long. Just Google it and you will see many articles about it.

April 5, 2021
12:36 am
smayer97
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Norman1 said
The interchange fee charged on the merchant side is different from the 2½% foreign exchange fee changed on the cardholder side.
  

Did not originally pick up on that. Thanks for clarifying.

April 5, 2021
7:13 am
Norman1
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User230 said

Here is a recent article about Brexit causing interchange fees to likely rise in Britain. Anytime Visa or MasterCard have a chance they seem to raise interchange fees:

https://eminetra.co.uk/visa-plans-to-raise-fees-after-brexit-withdrawal-of-eu-cap/361850/

Summary:

-EU regulations no longer apply to British interchange fees

- Scheme fees between the EU and Britain are to increase to 1.5% from 0.3% and debit card interchange fees to 1.15% from 0.2%.

 

Those sound like the cross-border merchant fees when, for example, Visa Canada accepts a Visa card issued by Visa USA. That's different from the interchange fees.

It isn't surprising. Since the UK is no longer part of the EU, UK merchants that accept Visa or MasterCard cards from an EU country are now charged the regular cross-border fee and not the lower intra-EU cross-border fee.

April 5, 2021
10:46 am
Loonie
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It may only apply to trade with EU for now, but the article also says:
"Payment processors also plan to... charge more for domestic payments using UK companies’ credit cards."

April 5, 2021
11:23 am
Pronounced Zed
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Norman1 said

Merchants have always been free to offer discounts at the checkout for different payment methods. But, I've yet to see a sign at the checkout that says 2% off for debit or cash.

Haven't seen this in almost two decades and I don't think we'll see it again anytime soon. Credit card companies refuse to do business with merchants who practice this.

April 5, 2021
12:19 pm
Norman1
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Norman1 said

Merchants have always been free to offer discounts at the checkout for different payment methods. But, I've yet to see a sign at the checkout that says 2% off for debit or cash.

Pronounced Zed said

Haven't seen this in almost two decades and I don't think we'll see it again anytime soon. Credit card companies refuse to do business with merchants who practice this.

You're confusing discounting with surcharging.

Surcharging is when a sleazy merchant charges extra at the checkout for paying with a credit card. Consumer takes a $10.99 item off the shelf and the cashier adds 3% when the customer pays for it with a credit card.

Surcharging is illegal under the credit card agreements and is further illegal in certain places in the US.

April 5, 2021
1:23 pm
Loonie
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Pronounced Zed said

Norman1 said

Merchants have always been free to offer discounts at the checkout for different payment methods. But, I've yet to see a sign at the checkout that says 2% off for debit or cash.

Haven't seen this in almost two decades and I don't think we'll see it again anytime soon. Credit card companies refuse to do business with merchants who practice this.  

Just last night, we got a discount for paying cash at a Toronto restaurant (take-out). Spouse did the pick-up, and i can't tell you how much the discount was exactly. Such discounts are alive and well, but may or may not be advertised.

April 5, 2021
5:40 pm
smayer97
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In Canada and US there are merchants that advertise a CASH price. It is/was very prevalent in the US but even Mobil Gas has a cash price.

April 6, 2021
11:22 am
Norman1
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Multiple shelf prices are allowed.

The surcharge restriction applies when there's one shelf price and then a sign at the checkout that says +3% for MasterCard/Visa or +5% for AMEX.

If that is what the merchant wishes to do, then the shelf price needs to be the AMEX price and then a sign at the checkout that says something like -2% for MasterCard/Visa or -5% for cash/debit.

Some merchants lie about that and say that MasterCard, Visa, and AMEX prohibit discounts like that.

April 6, 2021
2:51 pm
Londonguy
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Loonie said

Just last night, we got a discount for paying cash at a Toronto restaurant (take-out). Spouse did the pick-up, and i can't tell you how much the discount was exactly. Such discounts are alive and well, but may or may not be advertised.  

I'm not saying this was the case with your recent experience, but smaller non-chain restaurants are known for offering a discount for cash because it can provide them with an opportunity to not record the transaction. No transaction record = no pesky income taxes to pay

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