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The Cost of a Credit Card Transaction

The large credit card “companies” in Canada have agreed to freeze their “transfer fee” to 1.5% of the sales value, which is suitable for retailers, but I am not sure if it is good or bad for consumers. The transfer fee is the skim the credit card takes every time you purchase a service or product, and the retailer pays it.

Credit Card
Frozen Fees for Now.

This skim can be as much as 3.0% of a sale that a retailer pays (for cards like Amex and other “premium” cards. This fee freeze will help retailers limit their expenses by allowing us the convenience of using Credit Cards for purchases at their store (or services from their firm).

The Canadian Federation of Independent Businesses says the skim adds up to between $5 and $7 Billion a year in costs. Who pays for that? The business has to incur the charge, but they pass on the cost with higher prices for services and products, and this is all so that we can make payments.

The other interesting question is how are the Credit Card providers (i.e. the banks) recuperate the income they will lose with this freeze? The banks will be the ones “subsidizing” this freeze, but they will (no doubt) find a way to either deal with the lost income, or find new income streams to extract the money from consumers (and businesses alike) (that is why I like investing in banks). The banks’ other option is to lower the “Freebies” and “Prizes” they have associated with their Credit Cards. Time will tell how this all works out.

Feel Free to Comment

  1. I have my 2% back on everything rewards credit card and I love it. If prices at all stores are going to be 1.5% higher because the merchants are passing off the costs of credit cards to the consumer, the only smart thing to do is grab a credit card that returns money back to you so you get back the higher costs. I won’t be raging against the machine and carrying around cash, because that doesn’t make any sense mathematically.

  2. I thought the skim was for Visa/MC, the short term loan part for the bank (and thus gains from the interest rates). Amex doing both or something.
    The rewards coming from the bank (interest), so the skim shouldn’t matter to the banks at all.

    Thought I read that somewhere, but might be mistaking myself.

  3. Is it really the “banks” that need to recoup the lost income…. or is it the “reward” companies that promote these silly systems…. because all it really is just someone making a job out of adding no value… simply skimming as you say a “commission” for being a middle man… what GDP output do they really add to the economy?
    At the end of the day a company that spends 50k in “expenses” for credit card handling fees… is what … 50k less they made and hence less tax paid to the govt…. but yes the consumer has their fancy “rewards”….

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