Retailers, other businesses will be allowed to charge up to 2.4% to consumers as inflation rises, Canadian shoppers are well aware that the cost of nearly everything is increasing. But they can soon expect to see a new demand on their dollars when shopping, because starting Thursday, retailers and other businesses will be allowed to charge fees each time they swipe their credit card upon providing notice to card companies.

While consumers love the convenience and rewards of paying by credit cards, they have angered retailers for years because, as part of the original card agreements, stores had to give a percentage of every sale to the card providers to process the transaction. Fees could range from fractions of a percent to over 2 percent for some premium cards.

As part of their card agreements, merchants were prohibited from passing this cost onto consumers. But all of that changed earlier this year when Visa, MasterCard, and other card providers settled a long-standing lawsuit on this issue in Canada - agreeing to a $188 million deduction for merchants known as interchange fees charged by merchants over the past decade.

Luciana Brazil, a partner at MacMaster LLP law firm in Vancouver, who worked on the class action that led to the settlement, said, "Credit cards are one of the most expensive payment methods for merchants." She said customers love paying by cards because they "get their points, discounts, and benefits," but they rarely ask themselves who pays for that.

"In fact, the more benefits these credit cards offer consumers, the higher the cost for the merchant to accept them." Many parts of the world, including the EU, UK, Israel, Australia, China, and Malaysia, have capped fees, known as interchange fees, at less than one percent.

Visa says the average interchange fee for its cards in Canada is 1.4 percent. Merchants must give 30 days' notice, a part of the deal Brazil struck with credit card companies, allowing merchants to pass this cost directly onto consumers in the form of additional fees - meaning consumers should get used to seeing them soon.

The new rules will not be free for everyone; starting Thursday, merchants must give card providers 30 days' notice before intending to start charging fees. They must also inform customers at the time of payment that there is an additional fee, and it cannot exceed what they pay themselves.

Finally, the additional fee will be capped at 2.4 percent. But the rules will not apply in Quebec, as this type of fee is banned under the province's Consumer Protection Act.

Telecommunications provider Telus has already warned its customers that they will have to pay an additional fee of about $2 per customer on average starting this month if they pay their bill by credit card.

More and more companies are likely to do the same soon. In a survey of nearly 4,000 members of the Canadian Federation of Independent Business (CFIB) conducted in early September, the group found that about one in five small businesses plan to charge fees, and more than a quarter said they would do so if their competitors did.

More than one-third say they plan to use other methods to try to persuade customers to pay using another method, and more than a quarter say they simply plan to raise their prices to cover the cost of credit card payments. Most small businesses say they do not want to collect fees, but with the card provider taking $2 from every $100 sale, they have no choice but to impose additional fees, even if it costs them customers.

Corinne Pulman, Vice President of National Affairs and Partnerships at CFIB, said, "Most small retailers are still on the fence or do not plan to charge extra fees because they do not want to risk losing customers." "But the extra fees give them the ability to offset some of their costs and be transparent with their customers about the fees they are paying."

Entrepreneurs Chris and Nuno Ramben are among those planning to charge customers for credit card use, albeit reluctantly. Chris, who owns Bona Café downtown Toronto and Nuno Restaurant with his wife, said, "I look positively at this change because I think it will probably change consumer behavior."

"They will consider cheaper ways like paying cash - many restaurants accept cash only - or debit, which is much cheaper." He said interchange fees have always been a thorn in his side, but with the restaurant industry coming out of the financial losses it suffered during the Covid-19 pandemic, his company is less able than ever to bear them. "We are really at margin vulnerability, and a 2 percent fee can be significant." "Honestly, I don't see another solution."

Consumer choice Consumers are likely to be concerned about the fees.

For others, the lure of reward points is likely enough to keep using their cards even if fees are attached. A report by the Bank of Canada last year found that Canadians earned $3.4 billion worth of rewards from their credit cards in 2018, with higher-income earners benefiting more than others because they are more likely to use credit cards as a payment method.

These rewards come at a high cost to merchants - over $11 billion in 2018, the central bank found - but many consumers are unlikely to give up these perks.

Telus requests CRTC approval to add a 1.5% additional credit card fee to customer bills Walmart struck a deal with Visa to settle a dispute over credit card fees Lindsay Powell from Calgary said, "I rarely pay for travel because of points." "Everything I buy, I don’t even carry a debit card with me [because] I get... travel points for everything." For Chris Ramben, it is unreasonable for shoppers to get a free trip at the expense of heavily impacted small business owners.

He said, "It’s unreasonable that I pay the fees." "So yes, I’m very happy it will be passed to the people who actually make the decisions - and have a choice."                                             Editor: Yusra Bamtaref