I’m sure you’ve seen the new articles about how companies in Canada can now charge customers surcharges for using their credit card to pay. But what does this really mean for you as a business owner and why did the rules change?
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Class Action Lawsuit in 2011 changed the rules in 2022
Back in 2011 there was a class action lawsuit filed alleging that some banks and Visa and MasterCard conspired so they could set high interchange fees and create rules so that Canadian companies couldn’t recoup those interchange fees from their customers. The lawsuit was settled, and the rules have changed for Canadian businesses. (But none of them pled guilty, they just agreed to the settlement.)
There are rules to follow if you decide to charge your customers
Now if you accept Visa and/or MasterCard for payments you have the option to charge a surcharge on these transactions as long as you follow the rules. And just what are those rules? You can find them here for Visa and here for MasterCard, as well as here for a recap from the Government of Canada. A brief recap is below:
1. You must tell Visa and MasterCard that you will be charging a surcharge to your customers a minimum of thirty (30) days before you start charging the surcharge. This applies to both separately, so if you are charging the surcharge you need to inform both Visa and MasterCard, unless you only accept one of them (though I’ve never run across this).
2. You must inform customers that you will charging a surcharge. This must be clearly shown at the checkout.
3. You must decide how you are charging the surcharge – brand level (Visa / MasterCard) or product level (the type of Visa / MasterCard). You can only pick one method.
4. A business can only charge as much as the interchange fee, no more. The average interchange fee in Canada is 1.4%, but the maximum surcharge is 2.4%. As a business you must calculate the interchange fees you are paying and only charge that back to your customers. This will require understanding your merchant account statements to determine what you are allowed to charge your customers.
5. When a payment is processed there must be a message that there is a surcharge being applied and what either the amount or percentage is, and give an option for the customer to continue and pay the surcharge or change their payment type.
6. On the receipts there must be a separate line that really details out that there is a surcharge and what the cost is.
7. The surcharge only applies to Visa and MasterCard, not Debit Visa or MasterCard Debit. It also doesn’t apply to any other credit cards and does not apply to debit interac.
But should you charge your customers the surcharge?
So great, you can recoup some of your costs now, something never before possible in Canada. But the next question you need to ask yourself is, should you apply the surcharge? What happens if you do, and what happens if you don’t?
There is more to this than just recouping costs that for years have been a cost of doing business. (If you have been collecting payment by credit card the costs to this are accounted for in your expenses and should be factored in when figuring out your prices.) As a business owner you have to think about how your customers are going to feel when they are being charged this fee. Are they going to go to a business that doesn’t charge the fee? Are they going to pay another way? Or will they just accept it and not change their buying behaviour?
Will charging the surcharge cause more work than it’s worth for your business?
You also have to think about the work that this requires on your end as a business owner. You need to know the percentage of the interchange fees you are charged, you need the signage, you need to make sure your POS terminal has the correct options, and your receipts have to have the charges listed. In your accounting you need to have an income account for the interchange fees. And I haven’t been able to find out if sales taxes are charged on top of the fees or not.
On the other hand, now you have the option to offset the cost of accepting credit cards. This would certainly help your bottom line. Now instead of just a business expense you have an offsetting income. Your net income will increase without having to raise prices.
There’s still information we don’t know, like are sales taxes charged on top of the surcharge.
Then again there is still a lot we don’t know. Are sales taxes charged on top of the surcharge? How do you keep your customers informed about how much you are paying? (And do you even have to? The rules state you cannot charge more than you pay but as a consumer I want to know I am not paying more than you as a business are paying…the joys of being a business strategist and accountant.)
So, should you, or shouldn’t you? That is the big question. I know for my business when I start accepting credit cards for programs and courses, I am not passing along those fees to my customers. To me they are the cost of doing business and when I am figuring out pricing, I include that as a cost that at least some of my customers are going to want to take advantage of. And when I am working with clients on their strategy, which includes pricing, taking those fees into account is something that we do. And if the fees are eating too much into your net income, you have other choices than these surcharges. You can raise your prices, look at changing who you process credit cards through, or giving a discount or incentive for paying by a method other than credit card.