Canada Approves Surcharging. Will It Be As Popular As It Is in The US?

In October of 2022 the Canadian government approved surcharging. Merchants – except those in Quebec – can add a surcharge to any credit card transaction from an approved card network operator.

It follows general US guidelines for surcharging:

1. The merchant must give advanced notice of the intent to surcharge
2. The surcharge cannot be higher than the cost to accept the credit card or higher than 2.4%
3. The consumer must have clear notice of a surcharge prior to a transaction

There are three pretty big differences, however.

First, Canada sees a ton of debit transactions through Interac.

Those familiar with Canadian payment volumes told us Interac accounts for approximately 32% of all card volume (and growing).

According to Luciana Brasil, a partner at Vancouver-based law firm Branch MacMaster LLP, which worked on the class-action lawsuit that led to the settlement and surcharging approvals, debit cards cannot be surcharged.

To clarify a bit, Visa debit and Mastercard debit run on the Interac rails for card present and the Visa/Mastercard rails if card not present. This, and Interac debit, cannot be surcharged the 2.4%

However, Interac debit can be surcharged: Interac charges the acquirer around $0.022 per transaction along with an assessment or switch fee of another $0.01. Processors on average charge between $0.05 and $0.10 per transaction.

Merchants can program their devices to add an Interac surcharge, often labeled a “convenience fee’” but it must be a transaction fee as well.

Second, the juice on Canadian surcharging isn’t as plentiful.

The average US interchange rate is 1.8% for credit cards and 0.3% for debit cards.

US surcharging is capped at 3.99%.

Surcharging debit cards is impermissible in the US as well, but that hasn’t kept companies like Toast from allowing it anyway, in open defiance of card network rules.

Yea, that’s right: Fuck you Mr. Consumer!

Toast’s malfeasance aside, it would mean US surcharging could maximally generate a scumbag processor 3.99% – 1.8% = 2.19% of a merchant’s gross transaction volume.

Which is insane, by the way: a 2.19% tax for literally zero value.

Anyhow, in Canada the maximal value for all non-Toast (i.e. honest entities who don’t surcharge debit cards) processors would be 2.4% – 1.5%, which is Canada’s average credit card interchange rate.

That would mean shitbag processors could only steal make 0.9% of a merchant’s gross revenues.

Boo hoo.

Lastly, Canada, like Europe, implemented the version of EMV that actually reduces fraud: chip and PIN.

In a chip and PIN setup, the card has an EMV chip and the consumer must also enter a 4-digit PIN, like us Americans do with debit cards at ATMs (which are a dead business, BTW).

This payment flow requires that the merchant be in front of the customer at check out. In the US, even with our “secure” EMV cards, we can hand the card to an attendant and they can run the transaction on their end with no further input from us, the consumer.

Elsewhere (i.e. in the civilized world) the customer would be required to input a PIN on a payment device.

That means that the consumer will sure-as-shit see the surcharge on checkout.

We’d expect that this in itself means that Canadian merchants must be willing to engage in uncomfortable conversation to explain the surcharge to each customer who reasonably asks about the fee.

For these three reasons we don’t see surcharging being as popular in Canada as it has been in the US.

In fact, any surcharging would likely just drive more consumers to use their Interact debit cards.

Because anyone with a brain could do the math and figure out that the cash back rewards on their credit card is less than the amount they’re being surcharged, meaning that they’re actually losing money with each credit card swipe.

#paymentsvalue.

And unlike us mathematically illiterate Americans, Canadians might just do this math.

Many thanks to our good friends at Sona for not only providing good information for this article, but being honest payments people.