Power to surcharge on credit cards coming soon; nearly 20% of small businesses are looking to use it

TORONTO, Oct. 5, 2022 /CNW/ - Merchants will soon have the ability to surcharge on credit card transactions to offset credit card processing fees, and nearly one in five (19%) small businesses are considering it, found a new survey by the Canadian Federation of Independent Business (CFIB).

As a result of a recent class action settlement, Visa and Mastercard will give small businesses the power to add a surcharge on some credit card transactions starting October 6, 2022, to offset their merchant fees. Due to consumer protection laws in Quebec, this option will not be available in that province.

"Most smaller merchants are still on the fence or don't plan to surcharge as they don't want to risk losing customers. However, it's important for them to know they will have this option," said Corinne Pohlmann, Senior Vice-President of National Affairs at CFIB. "Small businesses have long been dealing with expensive credit card processing fees and trying to find ways to absorb the cost of accepting premium cards without the ability to surcharge or refuse those cards. Surcharging gives them the ability to offset some of their costs and be transparent with their customers about the fees they pay." 

A recent survey of CFIB members found that 19% of merchants intend to use the new power to surcharge, while a further 26% said they will do it if their competitors or suppliers do. More than one-third (40%) of small firms said they are not sure yet if they will surcharge, while 15% said they don't intend to do it.

Businesses that often sell to other businesses (B2B), like construction, manufacturing and finance/insurance, were most likely to report they will surcharge for credit card usage, while businesses that serve consumers were less likely to say they will do it. Among consumer-facing sectors, a total of 19% of hospitality (e.g. restaurants), 17% of personal services businesses (e.g. salons) and 12% of retailers intend to surcharge.

"These data reveal the frustration so many business owners feel about the high cost of credit card processing, which can eat about 1.5 to 2.5% of every sale," said CFIB president Dan Kelly. Currently, 35% encourage customers to use other forms of payment and 28% said they increase their prices to absorb credit card fees.

CFIB continues to call on the federal government to deliver on its 2021 election promise to further reduce ongoing credit card processing fees for small business. Small businesses in Quebec should also have the right to surcharge to offset their credit card fees.

"The power to surcharge will allow merchants to address their rising operating costs, push back against future credit card fee hikes and keep their prices competitive," Kelly said. "With mounting pressures small businesses are facing due to inflation and government-imposed costs, surcharging is another way to reduce their cost burden."

Merchants can now apply to surcharge by registering their plans with their credit card processor and Mastercard (Visa requires registration with the processor only). Once they have registered their intent to surcharge, merchants must then wait 30 days before they can start to apply a surcharge on Visa and Mastercard transactions.

"All payment processors should be ready to support merchants interested in surcharging as soon as possible. If the processors aren't ready, CFIB is urging them to find a solution for merchants who wish to start surcharging," Pohlmann added.

For more information and some tools related to surcharging, business owners can visit cfib.ca/surcharging.

Methodology:

Flash Survey – Credit Card Merchant Fees: Preliminary results for September 1-8, 2022, based on a sample of 3,914 CFIB members. For comparison purposes, a probability sample with the same number of respondents would have a margin of error of ±1.6 per cent, 19 times out of 20.

About CFIB

The Canadian Federation of Independent Business (CFIB) is Canada's largest association of small and medium-sized businesses with 95,000 members across every industry and region. CFIB is dedicated to increasing business owners' chances of success by driving policy change at all levels of government, providing expert advice and tools, and negotiating exclusive savings. Learn more at cfib.ca.

SOURCE Canadian Federation of Independent Business

Dariya Baiguzhiyeva, CFIB, 647-464-2814, [email protected]