Premium Cards with Hidden Costs for Business Owners

by John Stevenson on September 27, 2011

Premium credit cards are often offered with high annual fees and interest rates to cardholders, but this is not the whole story. Business owners that accept premium cards often face a fortune in transaction fees. Until recently, most shop owners were not aware how much it would cost them to accept different credit cards. For many, regular and premium credit cards are indistinguishable.

Canadian cardholders charge purchases in exchange for free groceries, travel miles, and anything that brings something in return. In fact, Canadians have been collecting and redeeming more points than Americans. With some effort on their part, they can compare fees and interest rates as to see what will be the best card to use. The same is not true for businesses that want to know what it costs them to accept these cards. While CFIB-member merchants pay MasterCard and Visa up to 1.75 percent to accept standard credit cards, the cost of accepting premium cards can reach 2.71 percent. Some premium credit cards cost even more if the cardholder exceeds certain spending or income level. However, premium cardholders, which are also among the affluent customers, are also the most valuable clients for merchants, explains MasterCard Canada’s executive director Don Lebeuf. Premium cardholders spend some 47 percent more than regular customers per single transaction.

Fortunately, not all cards impose hefty fees to merchants who accept them. The ATB Gold Cash Back MasterCard and the TD Platinum Travel Visa offer perks to customers without imposing high rates on retailers (Toronto Sun). The credit card by TD, for example, goes with 15,000 bonus points with the first purchase, and cardholders can book a trip through a travel provider or travel agency of their choice. Points can be redeemed for any type of travel, including package, air, cruise, hotel, train, and car rental.

Given that there are dozens of premium cards that offer cardholders points and do not impose sky-high fees on businesses, CFIB has asked consumers to switch to cards from this category, explains Dan Kelly, vice president of legislative affairs in CFIB (The Globe and Mail). The list compiled by them contains a number of credit cards with hefty fees for merchants. Cards that charge 2.46 percent include BMO AIR MILES MasterCard for Business, BMO US Dollar MasterCard for Business, and the Ultramar MasterCard Business Card by the National Bank. In comparison, accepting regular cards is less expensive (1.65 percent). Such cards are the Dividend Visa Card by CIBC, the Visa Cash Back by RBC, and others.

Kelly explains that there are benefits to opting for a regular credit card. Not only are cardholders helping local businesses, but this helps keep prices down for everyone. Giants like MasterCard, however, do not support changes allowing business owners to accept only some credit cards and not others. To this, some CFIB-member retailers are taking measures to encourage clients not to use premium credit cards. They have started posting in-store signage, asking clients to pay by debit, cash, and other low cost methods.

Comments on this entry are closed.

Previous post:

Next post: