Potential Game Changer

The Background

Veterans of the Travel Hacking scene know that Visa and MasterCard love to upsell customers to their elite cards like the Visa Infinite or the World Elite Mastercard.  For consumers, it’s great because these cards tend to have the same annual fees as other cards but with added benefits like travel insurances, purchase protection and sometimes lounge access.

The reason they like to have these cards in the hands of consumers is that merchants pay a higher percentage for the payment processing associated with these cards.  The differences can be dramatic.  A “normal” MasterCard might charge a merchant 1.69%, whereas a “premium” card would be 2.39%.  As a merchant, you probably cringe every time you see a premium card being pulled out of a wallet because you have to accept it, knowing full well that your margins will be reduced.

Imagine if you are a retailer selling a television for $2,500.  With a normal MasterCard, you would pay $42.25 in processing fees but with a premium card, you would pay $59.75, a $17.50 difference.  Take that and extrapolate that over a year and you can start to understand how much that can hurt a retailer’s bottom line.

The Fallout

As you can imagine, retailers did not like the fact that they had to accept higher fees for these premium cards because they had no recourse or ability to recover these fees.  The terms with the credit card issuers previously stated that retailers could not charge consumers (you and me) a surcharge for using premium cards.

Well, that’s about to change.

In a class action lawsuit, the Canadian Federation of Independent Businesses (CFIB) sued Visa and MasterCard because of these fees.  In a settlement, Visa and MasterCard agreed to pay $19.5MM each and allow Canadian retailers to add surcharges on credit card payments.

Visa said in a statement that these new rules will come into effect 1.5 years after the provincial courts in BC, Alberta, Saskatchewan, Ontario and Quebec approve the settlement.

What Does That Mean For You?

It’s going to be a little while before you see merchants have the ability to add a surcharge for credit card payments but when they have the ability, what can you expect?

My hope is that large merchants will continue to absorb the payment processing surcharge as a cost of doing business but I would not be surprised to see some merchants implement fees to use a credit card.  Small mom and pop’s retailers will most likely be the first to add a fee because they are the ones that have the hardest time paying these fees.

I would expect that low margin businesses will take advantage of this new power and perhaps even some larger retailers like airlines.  Discount airlines in Europe have been charging fees to use credit cards for years now and I could definitely see this happening with Canadian airlines.

I’m afraid that this situation is going to have a domino effect.  If a large retailer like WalMart decides to add credit card surcharges at their point of sale systems, almost every other retailer out there will follow suit.

As a Travel Hacker, these potential surcharges puts your valuation of your award currencies completely out of wack.  As many of the best earning cards out there are premium cards, you’ll have to evaluate if you can extract enough value out of your points to justify the fees.  Unfortunately, this is going to be a calculation you will have to do on a case by case basis as I expect that not all retailers will charge the fees, at least to start.

I forsee a lot of mental math in your future.

For more information on the story, check out this link.