Credit card fees too high? Give us a discount for paying cash

James Cowan has an idea for Canadian retailers

Credit card tricks

Photograph by Jessica Darmanin

James Cowan is deputy editor of Canadian Business

The year is 2016. You stand in line at the clothing store, your sleek black Visa Infinite card in one hand and a pair of pants—also black, a tad less sleek—in the other. You approach the till and proffer your card. But the clerk waives it away with a weary “we don’t take that one,” and points to a small sign delineating which varieties of Visas are acceptable to the clothing chain. They do accept the Gold Visa of the young mother standing behind you, but she’ll have to pay a couple of extra bucks for the privilege. How, you wonder as you slink out of the store, did we wind up in this dark retail dystopia? I’ll tell you.

Since 2008, Canadian retailers have been squabbling with credit card companies over the fees they pay to accept credit-card payments. Shopkeepers want leverage to negotiate lower fees so they don’t have to hike prices; credit companies oppose changes that would make it more difficult to use their cards. Both sides cast their arguments as “putting consumers first.” And now, the Conservative government wants to play too. Next month’s throne speech will put forward its own “consumers first” agenda, according to the National Post. Not content with fussing with the telecom and airline markets, the government now might step into the credit card donnybrook too.

That’s a bad idea. There is a simple, common-sense, no-new-regulations-needed solution available to retailers that would give them bargaining power over credit card companies and benefit their customers too. They just need to stop waiting for Finance Minister Jim Flaherty to solve their problems.

Three years ago, retailers found a champion in the Competition Bureau when it launched an investigation into Visa and MasterCard, which process 90% of the credit card transactions in the country. The watchdog objected to several of the companies’ policies, including a requirement that shopkeepers accept all types of cards issued by a particular company—they can’t accept the Visa Gold Elite, for example, but decline the Visa Infinite. Retailers object to this “honour all cards” rule because not all cards are created equal: sellers pay upwards of 3% to process “premium” cards, like the Infinite, compared with 1.5% for others. A $400 pair of snow tires rung through with a debit card would cost the merchant just 12¢; a credit card could top $12. Retailers wanted to mitigate these exponentially higher fees by passing them along to customers with a surcharge. But this, too, is forbidden by the card issuers.

Ultimately, the Competition Tribunal proved unsympathetic to the retailers’ plight—which is good news for all of us. Killing the “honour all cards” rule would create endless aggravation at the cash register and stifle competition too (smaller, upstart banks like Capital One have become major players in Canada in part because no matter the bank’s size or reach, customers can rest assured that stores are still guaranteed to accept their cards). The ban on surcharges is also beneficial to consumers. Retailers tend to turn these surcharges into a way to boost their own profits: one study found merchants in Australia, where the practice is allowed, imposed surcharges close to 2%—more than double the fees charged by the credit card companies.

If stores truly wanted to enhance their negotiating position with the credit card companies, they could simply offer a discount for paying by cash or debit. No customer is punished; some are rewarded. Retailers argue that discounts are complicated to implement, but that’s hogwash. Every mom-and-pop pizza joint that gives a discount for picking up your order solved this riddle years ago. And plenty of retailers offer discounts in concert with credit companies—like car rental agencies that give a discount for using a particular type of Visa. If discounts are effective in driving people to pay by credit cards, they’ll work to push them away as well.

Flaherty endorsed discounting in 2010, when the federal government unveiled a code of conduct for credit card companies. It’s a far better solution than any “consumers first” legislation—which would really just put us last.

This article appeared first on

Filed under:

Credit card fees too high? Give us a discount for paying cash

  1. Cash discounts are not possible for most retailers. Visa and Mastercard enforce agreements on their retail clients that effectively eliminate cash discounts. A retailer that does’t agree will either pay an even higher fee per transaction, or simply will not be allowed to accept Visa or Mastercard transactions. A retailer caught defying this “agreement” and offering cash discounts will find himself cut off Visa’s and/or Mastercard’s networks, and having to turn away all credit card purchases. In other words, his business will be done. That’s the nonsense the Competition Bureau should have ended.

    • I think you nailed this one RR.

      Although I’m not familiar with Retailer credit card contracts, I think it is highly likely that offering a discount for a cash payment to a customer, or refusing a premium card in favour of a regular card, would violate most any Mastercard/Visa – Retailer agreement. Just read the fine print.

      Ultimately, the Competition Tribunal proved unsympathetic to the retailers’ plight—which is good news for all of us.

      Right. We have two companies controlling 90% of the CC market. The Big 5 banks in Canada pull the strings of both.

      This is NOT good news. And this article is rubbish.

      Don’t even get me started on the Competition Bureau.

      • Thanks for commenting on my piece. Just to clear up one point,
        cash discounts are, in fact, allowed under merchant agreements. I’d
        refer you to the Competition Tribunal’s findings (Paragraph 296

        As well as the federal credit card code of conduct:

        Whether they’re the best way to solve this problem is, of course, up for debate and I appreciate your points of view.

        James Cowan

        • Thanks for that reply and the links. I did not read the first document completely but I came away with this:

          The ‘no-discount’ clause is gone now (illegal?) but that is relatively new (2010?). How many merchants are even aware of that?

          The ‘no-surcharge’ and ‘no-discrimination’ rules in merchant agreements remain in effect. So a merchant cannot impose a surcharge and cannot discriminate against premium cards. Yes – a merchant can offer different discounts on different cards provided all the information is clearly posted. That would probably require the sign the size of a billboard.

          What a pile of rubbish. These rules amount to discrimination against customers who do not have a credit card or have non-premium cards (oh, you have a premium card? – We have a 4% discount for you if you pay cash!).

          Let the merchants work the logistics for that themselves. All we (the banks) are saying is that if a merchant is allowed to surcharge on a CC card, then those evil merchants will charge more than they need to and consumers will suffer. CC transactions will drop and the economy will suffer.

          The rent seeking behaviour of Canada’s banking oligopoly continues…

  2. Hmm, I don’t know much about this but I do know that I have, for years, read that one can negotiate if willing to pay cash. I tried this only once, when outfitting an entire new home office, and making a large number of same-day purchases from an electronics store. I asked the computer science dropout if they would give a discount if I paid in cash and he looked at me like I was crazy. So I paid with Visa and later used my points to travel to Australia.

    I also really hate the practice of certain stores that levy a 25 cent fee everytime I use a credit card to pay for my purchases — how are they allowed to do that if, as RR says above, they are disallowed from providing cash discounts, why can they make cash surcharges? They only tell you just as you’re about to key in your numbers — ie the transaction is nearly done.

    • The stores that levy the fee (or conversely offer a cash discount) are not subject to those agreements. I don’t know how the cc companies decide who must sign these binding agreements and who is exempt.

      • The levy is on Interac cards, ironically the one that costs them least. It’s wrong, a minor rip-off.

    • Vote with your feet, immediately the cashier does that.

  3. Wouldn’t offering a cash discount really be a disguised surcharge for using the card – and thus be a breach of the no surcharge term of the agreement? It’s semantics, but the net effect is the same.

  4. I think most people use their credit cards over Interac or cash for two reasons: first, they can’t afford to buy what they’re buying – so the retailers wouldn’t get anything anyway unless they accept the credit card and accept the small percentage hit in their pockets that comes along with that. There’s no solution to this as far as the retailers are concerned, I don’t think.

    But secondly, people want their points! They can spend $150 on an annual credit card fee, pay $1000 a year in interest, and then get a toaster on credit card points and still think they got a great bargain from their credit card company. If retailers helped dispel the myth that points are worth their cost, which for a great many people they are not, perhaps more people would pay cash. Instead they’d rather accept the credit card and then complain about it.

    • I can afford all of my credit card purchases and I pay no interest and I end up getting a few hundred back on a cheque at the beginning of the year..

      • Good for you! Not everyone is as clever or as fortunate as you though…

    • I’ve watched folks use their credit cards at supermarkets to pay for their trolleys of food. They don’t seem to know how much more expensive that is, or simply do not care.

      • It’s not one penny more expensive than cash if you pay your balance at the end of the month. And, as Mr Jawsome points out above, if you pick your card wisely (i.e. not one of those scammy “points” or “miles” cards, but one that pays back in cold, hard cash), you get one or two percent cash back on all you spent using your card. Not only is it free money because it’s an interest-free-loan for a month, but it’s free money with the cash back that is taken back from the profit margins of greedy retailers. Have you compared the prices of, say, home electronics on a large chain store’s website in the US and Canada? (use any other example you like: chainsaws and lawnmowers, etc. find the exact same brand and model and compare the price; adjust for exchange rate, and leave taxes out of it for the purposes) Canadian retailers have been hosing customers ever since the GST was introduced, kudos to the card companies for helping us fight back! And when you think about it: one or two percent of all you spend over a year is a nice pocketful of change if you make a habit of using the credit card wherever you can… Over the past years, the cash back return on my card is a nice, fat multiple of the annual fee on my card. If the retailers don’t want me to use my card, they should be prepared to give me the credit card fee they are charged as discount, instead of to the credit card company, but then, their out-of-pocket cost would then be the same…

  5. I think many non-chain places are willing to work with you if you pay cash, but credit card fees aren’t what is trying to be avoided, if you catch my meaning.

  6. Some companies that accept credit cards may give a discount if you ask for it. I had some work done recently and received 1.9% (almost $200) off and paid bill with a cheque.

  7. I use my Credit Card for online purchases only. Everything else I buy is paid for with cash.

    I was in a clothing store in California a couple of years ago. I don’t remember the name but it wasn’t part of a chain. I put over $300 worth of clothes on the checkout counter, the girl rang them in, one at a time, removing the tags and neatly folding each item, and put it all in a couple of bags. She gave me the total. I started to put down a bunch of $20 bills and she pointed to a sign that said something like “for security reasons we don’t accept cash”. I had Visa & MasterCard in my wallet, but I walked out.

    I pay cash, or Debit Card, for everything. If you don’t want it, someone else will.

  8. The use of cash imposes costs as well; but they are mostly imposed on society as a whole rather than merchants. Cash requires expensive guarding since it is an anonymous means of exchanging value. Most crimes require cash at some stage. Who breaks into homes to steal TVs because they want a TV – thieves want to steal things that they can turn into cash. How many merchants would be concerned about stickups if there was no cash on the premises?