High-gas prices, expensive groceries, rent increase and an overall high cost of living is the reality for most Canadians. With inflation on the rise and high-interest rates, a lot of people are careful about how they spend their money. Unfortunately, there’s a new pesky fee that every credit card holder might have to face when making a purchase.
What are credit card interchange fees?
Interchange fees are the fees a merchant pays to accept card payments. They are often described as the price of accepting credit cards. These fees cover risk, handling costs, credit card rewards, etc. Here’s a great summary from mastercard.ca.
For a while, Canadian merchants were not allowed to pass this cost to consumers and as a result, this lawsuit happened. Now merchants can charge up to 2.4% of the price, as long as they give a 30 days notice and visually display this cost to the customer. To make matters worse, this fee will be charged before taxes, increasing the overall price.
As of this writing, interchange fees aren’t regulated by the government, but remain controversial. Merchants voice that these fees often make up a big chunk of operating costs. This is why some small businesses avoid offering certain payment types. So before protesting with our pitchforks, this is something to keep in mind.
But you would think that businesses already factor in these fees as costs of goods when setting prices, rendering these new charges pointless. And this is why it looks greedy to some people. Check out this article and see how people bombarded Samosa and Sweet Factory on Albion Rd with 1-star reviews for implementing these charges.
To learn more about merchant surcharges and fees, and how businesses should implement them, here’s a link to the Canadian government website.
Keep reading to learn how to avoid these fees when making purchases!
(Note: Interchange fees in Canada are higher than in the European Union, Israel, Australia, and China, which all have their fees capped well under 1%)
How to avoid interchange fees
Use Wealthsimple
Wealthsimple is well-known for its robust platform offering DIY trading, managed investments, tax filing and a spending account. The spending account offers a Prepaid Visa cash card, with 1% cashback. Since the card is a Prepaid Visa, the new interchange fees will not be passed down to the customer. (Note: There are no monthly fees associated with the Wealthsimple Spending account)
To learn more about the Wealthsimple Spend account, here’s a link to our article.
Use Koho
Like Wealthsimple, Koho is a Fintech company that offers a spending account with no fees. When you sign up, you’ll receive a prepaid Mastercard with 0.5% cashback. The app has a simple user interface with multiple useful features such as Roundapps, Early payroll, Credit building and more. To learn more about Koho, check out our review of the platform.
Use cash
The best way to avoid interchange fees is to use cash. But the hustle of dealing with cash may prove to be counterintuitive.
Use debit
Debit cards may not offer the same perks as Credit cards, but you won’t face the same type of fees.
Find a store that doesn’t charge interchange fees
If your favourite store decided to pass on interchange fees to customers, as a consumer, you have the option to shop somewhere else. We of course don’t encourage boycotting (in the future, all stores might do it), but it is important to understand the market.
Why do interchange fees exist?
Here are quotes from MasterCard’s website, summarizing why interchange fees exist.
How are rates calculated, why they exist and what is the money used for?
Mastercard does not earn revenue from the interchange.
Where not fully regulated by the government, Mastercard sets interchange rates based on the value delivered by the issuing bank and the benefits of accepting electronic payments. Setting interchange at the right level is important because if interchange rates are set too high, merchants may choose not to accept cards; and, if interchange is set too low, issuing banks have no incentive to cover the risks of issuing payment cards.
Setting interchange rates at the appropriate level also helps ensure that both issuers and acquirers deliver services that optimize the effectiveness of the payments system and spur development of innovative payment solutions.
Flexible interchange rates make it possible for electronic payments to deliver maximum value at the lowest cost for both merchants and consumers. Interchange also promotes credit availability for small businesses and is a key driver for financial inclusion when set at the optimal level
Mastercard.com
Interchange & fees. Mastercard. https://www.mastercard.ca/
Learn to save and invest
In tough times, it’s easy to get caught up in the moment and forget about the fundamentals. Yes, the high cost of living is not easy. People have less to spend, and the stock market is not performing that great. But that’s why it’s so important to be financially disciplined. Building an emergency fund, budgeting and investing your money will put you in a better position in the future.
