Canadian consumers are skeptical that a reduction in credit card transaction fees to merchants will bring them lower retail prices, according to a study by the Consumers Council of Canada.
Recent public policy discussions — the Competition Tribunal ruling in 2013, a Senate bill in 2014 and pressured “voluntary” transaction fee limits — have highlighted the complex relationship between credit card transaction fees paid by merchants and the funding those fees generate to loyalty programs. The study reviewed testimony to the Competition Tribunal and the Senate and conducted interviews with market participants. This led to a series of consumer focus groups in Toronto and Montreal. Participants were given a more detailed understanding of how credit card payments, merchant transaction fees and loyalty rewards were inter-related and then asked whether any of the commonly considered alternatives were attractive. Participants expressed a strong preference for the current situation over any of the alternatives, based on a skepticism that any reduction in costs to merchants would result in lower prices to consumers.
Among the other key findings from the Consumers Council of Canada study:
- Consumers have little understanding of how the payments system works, and little understanding of how loyalty programs are funded.
- Should more drastic measures take effect to reduce funding to loyalty programs, most participants indicated their payment choices would not likely change. Loyalty rewards were viewed as “getting something for nothing.”
- Determining where the consumers’ true interest lies in this discussion requires a complex econometric analysis that exceeds the scope of the Council’s research in this instance. Recent interchange fee reductions may or may not have a knock-on effect on retail prices, loyalty funding and charges for all banking services. But consumers initially react in favour of the personal benefits they see — points — over the intangible possibility of lower retail prices.
“There is a considerable gap between what consumers think they know and what they actually know,” said Consumers Council of Canada President Aubrey LeBlanc. “When consumers learn more, their attitudes reflect a cynicism about the competitiveness of the marketplace, that merchants won’t lower prices. It also reflects fatalism among consumers that they have the ability to effect a better payments system.”
The report includes a number of recommendations to all participants — consumers, credit card companies, merchants and banks, as well as areas for further study.
The Consumers Council of Canada has received funding from Industry Canada’s Contributions Program for Non-profit Consumer and Voluntary Organizations. The views expressed in this report are not necessarily those of Industry Canada or of the Government of Canada.