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Online credit card fees are hurting small businesses

Several retail and trade organizations are calling on the government to work with credit card companies to reduce online credit card transaction fees for small businesses.

Small businesses are already suffering from lower profits because of the ongoing pandemic.
Now as many of them move their business online, they’re also losing because of higher online credit card transaction fees. This is because most online businesses are done with credit cards and those cost them more to process than in-store sales, including cash and debit.

Credit card fees are hurting small businesses struggling to make a profit

The Canadian Federation of Independent Businesses (CFIB) says 60 per cent of its members report that their revenues are below pre-pandemic levels. They’ve been hurt by lockdowns and government health and safety guidelines required for businesses to stay open. These measures, as necessary as they are, cost them money and reduce their capacity to serve their customers, resulting in lower sales.

To survive, many small businesses have had no other choice but to pivot to e-commerce. Since the declaration of the global pandemic was declared, online transactions for small businesses have increased by 65 per cent.

But that change comes at a price.

The price tag to be online

Currently, on average, Visa and MasterCard transaction fees in Canada are around 1.5 per cent. That is what the retailer pays every time customers like us use our credit card to purchase goods and services. So for example on a $100 item, the processing fee would be $1.50.

However, a Visa Infinite card is 2.15% and a MasterCardPremium High Spend is 2.71%. The more premium your card, the higher the transaction fee.

But here’s where it gets complicated, the lowest fees are reserved for in-store purchases. Those in-person transactions, for the most part, are banned for small businesses in many parts of the country.

According to the CFIB, even these lower fees are higher than many other western nations.

Speaking to the Canadian Press, Retail Council of Canada vice-president Karl Littler says this “inevitably squeezes out cash” from merchants who would otherwise draw more revenue from in-store cash or debit transactions.

The RCC also reports that online transaction fees for the merchant tend to be higher than in-store, even when the same card is used. Recently one major credit company dropped its transaction fees for in-store purchases but hiked the cost for online sales. This has disproportionately hurt merchants during this unusual time.
Retailers remain offline because of costs

For businesses unable to offer online sales, the CFIB says cost remains a major barrier. Especially for those companies with fewer than 20 employees.

In their report, Small Businesses Experience with eCommerce during the Pandemic, the CFIB states “The main reasons cited for not adopting eCommerce are the type of products or services offered, a lack of technical expertise, logistical requirements and the financial costs of selling online.”

What small business wants (and needs)

Now, these organizations are asking the government to further step in to help lower their online credit card transaction fees for small businesses. This will save them money and create fairness between big box stores.

Many bigger retailers have remained open and pay lower credit card transaction fees.

“Smaller companies tend to pay higher fees than large companies do because they don’t have the volumes,” CFIB vice-president Corinne Pullman told the Canadians Press.

These added costs on top of the competition from big box stores are crushing small businesses’ ability to make a profit during the economic slowdown caused by the pandemic.

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Tips for small business owners to reduce transaction fees

Here are some of the recommendations the CFIB is making for small businesses wanting to reduce their credit card transaction fees:

  • If rates from a credit card processor look too good to be true, trust your judgement or call for advice
  • There are new fees including a new fee for returns and pre-authorizations, check statements to make sure they are not hurting your bottom line.
  • Check your statements to ensure you see your rates come down. If you are not seeing savings, you should contact your processor immediately or consider a new one

And one small tip for us consumers, try to use a non-premium, regular credit card to help the small business reduce their fees.

The bottom line

For its part, the government has been working with credit card companies to lower transaction fees for merchants. Since April 2015 the major credit card companies have reduced their average rate to where it is now. But again, it’s still not reflecting the new reality of the pandemic where a record number of purchases are being done online.

The CFIB continues to push to ensure credit card processing fees are fairer and more transparent for small businesses now and beyond the pandemic.