Tuesday’s announcements from the two largest credit card networks regarding reduced interchange fees in Canada highlights again the complications of how plastic payments work. Consumers appreciate the simplicity of the mechanics of transactions – I tap my card, I take my goods, and I pay the bill at the end of the month. But the inside workings of the system – interchange fees, issuers, acquirers – don’t resonate well with consumers.

So it may seem natural to excuse consumers for their lack of knowledge of how a modest (10% ish) reduction in interchange fees might affect them. But when the editors of Canada’s leading financial paper make numerous errors in their editorial on the subject, it’s a reminder that it’s not just consumers and small merchants who can get confused about this.

The Globe and Mai’s Nov. 5 editorial “Lower credit card fees? Good. Lower costs? Unlikely” posits that the reduced interchange fees would be a small benefit to business owners, and not much to consumers. That may ultimately be true, but the editorial contains numerous factual errors that undermine its position.

“The interchange fees, which are going to fall to an average of 1.5 per cent per transaction, are the amount the credit-card companies charge merchants every time a customer’s card is used to make a purchase.”

• Interchange fees are not charged to merchants. To process credit card transactions, merchants contract and pay acquirers, companies such as Chase Paymentech and Moneris, who provide the technology to connect the merchants to networks.
• Interchange fees are not the amount charged to merchants. They are a cost of business to acquirers, who then charge merchants based on that cost, plus their own expenses. Merchant discount rates are more typically in the 2.25 to 2.75 per cent rate.
• Credit card companies do not receive the interchange fee. It is the amount of money in each transaction that goes from the acquirer to the card issuer – typically a bank or financial institution.

“On a $100 purchase, the store keeps between $97 and $98.50, depending on the card type, and the rest goes to Visa or Mastercard or the banks that offer those cards.”

• The largest portion of what a merchant pays goes to the card issuers. The second-largest portion goes to the acquirers, who are not mentioned by the Globe and Mail. The credit card companies receive the smallest portion of each transaction. Technically, merchants receive the full $100 within a day of the sale, and pay their accumulated Merchant Discount Rates later, but that’s more a minor quibble than an error.

“For example, merchants that accept major credit cards are generally not allowed to offer a discount to customers who pay cash.”

• This is patently untrue. There are no rules that prevent this. In fact, in their testimony to the Competition Tribunal, both Visa and MasterCard emphasized that this could be an effective tactic to merchants looking to lower their costs of business. That makes sense, of course, if merchants believe debit and cash transactions are a better deal for them than credit transactions.

“Nor are merchants allowed to make the credit-card fee visible to the customer, by showing it on a bill of sale as is done with HST and other sales taxes.”

• Merchants cannot show the credit-card fee at the time of the sale because it is generally not known at the time of the sale. The fees applicable to different cards vary. The federal government has made improved cost disclosure a priority, and organizations such as the CFIB have provided information about transaction fees for merchants to post at their checkout facilities.