Earlier this month, Canadian businesses won the right to levy a surcharge for accepting credit card payments. This fee would be paid by customers who choose to use their credit cards.
The ruling on this lawsuit comes at a rough time for businesses across Canada.
Small and medium size brick and mortar businesses have had it terrible for the last 2-3 years. First being forced to shut down during extended periods throughout the pandemic. Only to open up to record high inflation, and looming recession.
It’s really no wonder that ⅕ businesses have already come out to say that they will “reluctantly” be charging their patrons the credit card charge.
That being said, will this actually help businesses?
Before we go any deeper let’s first discuss the history of this rule.
You might be wondering how they won this right if this was never actually a federal or provincial legislation.
In a way to level the playing field with cash and debit payments, VISA and MasterCard put in place a rule with its merchants that they couldn’t charge customers a fee for using their credit cards.
This policy led to massive benefits for credit card companies, and businesses alike, as customers got to enjoy all the benefits of spending on their credit cards and earning points without paying additional fees at the register.
However, as noted earlier, this all changed thanks to a class action lawsuit filed on behalf of business. It alleged that costs imposed on merchants have been punitively high.
Going forwards, businesses may now charge up to 2.4% of credit card transactions when customers are using either VISA or Mastercard. This does not apply to AMEX users, debit, or prepaid credit card users.
The move to a cashless society during the pandemic put a spotlight over the exorbitant fees merchants are forced to pay credit card processors. By allowing merchants to charge their patrons a credit card fee, businesses can in theory transfer some of the costs of selling onto the consumer.
While on the surface this may seem true, it’s not really clear whether businesses will actually benefit from this policy change.
For example, businesses have had to pay credit card fees since the inception of credit cards. As a result of not being able to directly charge a fee to their customers, they most likely already priced the fees into the sticker price.
Since many businesses are already struggling, this new court ruling can serve as a way for businesses to tack on the surcharge despite them already having priced in the credit fees.
This actually puts business between a rock and hard place. On one side, they offset expenses by charging the fee, on the other they may lose clientele to competitors who choose not to impose fees.
One thing to note is that businesses who will encourage the use of cash don’t actually take into account the costs of accepting cash. This includes, security, training of handling of money, balancing out registers between shifts and much more.
While in general the results of this lawsuit are good for business, in the sense that it gives power back to the market
The convenience of accepting credit cards is simply unmatched. For both the business and the consumer. The risks of putting additional fees on consumers is simply too large given the economic climate.
However, it should be noted that if businesses do decide to proceed with doing this, they would need a billing partner who can add these credit card surcharges as a separate line item on their receipts or invoices.
The eLabs platform automatically generates beautiful invoices for your customers, which are easy to read and understand.
If you’re interested in learning more, set up a call with one of the billing experts to see how eLabs can help your business reduce recurring billing headaches.