Is It Time To Switch From Credit Card Payments To Bank Account Payments?

Posted on January 12, 2023

Canadians already pay some of the highest interchange fees in the world. In fact, close to 1.5% of Canadian credit card spending goes directly to the big credit card companies and issuing banks. So if that’s the problem, how can switching to bank account payments fix it? 

Credit card fees have become a hot topic if you have been paying attention to the news lately. As of October 6, 2022, Visa and Mastercard gave small businesses the power to add a surcharge on some credit card transactions. Whereas previously, companies absorbed these interchange fees, business owners can now pass this on to their customers. 

This leaves many of us asking how this is going to play out.

The High Cost of Credit Card Interchange Fees 

So, why are Canadians paying such high credit card fees? There is no real clear answer on this one. It’s often left up to the credit card companies to determine the rates. Although Visa and MasterCard agreed to lower their average rates from 1.50% to 1.40% in 2020, they are still too high compared to other countries. For instance, the European Union caps settlement fees at a 0.30% cap across the board, and Australia limits interchange fees to an average of 0.50%.

Although the interchange caps may continue to decline in the Canadian payment landscape in the coming years, the jury is in; no one wins regarding credit card fees, except the credit card companies themselves. 

While merchants find themselves continuously frustrated losing 1.5 to 2.5% of every sale, they remain on the fence about passing along a surcharge to avoid the risk of losing or upsetting customers. 

Except that is when it comes to B2B. Things are about to get even more expensive for construction, finance, insurance, and manufacturing because those industries reported they were more likely to pass along the surcharge for credit card usage. A surcharge could be as high as 2.4% on every invoice paid with a credit card. The timing of this interchange debacle is not ideal, with food inflation hovering around the 10% mark and overall inflation sitting around 7%.  

Are Bank Account Payments More Cost-Effective Than Credit Card Payments?

The answer is a resounding yes. In almost all cases, using bank account payment methods over credit cards will always be more cost-effective.  

Merchants have already seen the savings in debit card payment processing. While the fees may vary depending on whether a PIN is used, the type of card used, and whether it is contactless, there is no doubt debit cards are cheaper.

Increasingly, in Canada, we see the Interac e-Transfer® for Business solution powered by Interac Corp. gain significant traction, particularly when it comes to recurring and subscription payments. As companies begin to factor in the expense of credit card fees, they are looking for a better solution. And for software-as-a-solution platforms, the Interac e-Transfer for Business solution has become a simple, convenient, and secure way to send and receive near real-time payments at scale directly from one bank account to another using our powerful API integration. Overall, bank account payments have become the safer, more affordable way to go.

Every time a client uses a credit card to make a purchase or pay a bill, several fees are attached to each transaction. The reality is the cost of accepting credit card payments has far-reaching effects that most businesses don’t even consider.

These include: 

  • Credit card expiry dates
  • Credit card transaction limits
  • Credit card fraud 
  • Credit card charge disputes 

Credit Card Processing Fees

Qualified merchant discount rates, or “discount rates,” are the fees a merchant pays for each credit card sale. The fees paid on each transaction (aka merchant discount rate) are split among the financial institutions that enable these payments. 

They include the following fees:

Interchange Fee - The fee discussed earlier in the article–what business owners can pass back to customers. This biggest chunk of money goes back to the issuing bank, managing the credit card used to make the payment. For example, a WestJet credit card issued by RBC means that RBC receives the interchange fees. 

Assessment Fee - This fee goes directly to the card network. Examples include Visa, Mastercard and American Express. American Express acts a little differently than other major credit card companies. They issue credit cards and operate their own payment networks to get the interchange and assessment fees. 

Payment Processor Fee - This goes to the company that manages the logistics of processing card payments for your business.

Payment Chargeback - A chargeback – also called a “reversal or friendly fraud” – is the return of credit card funds used to purchase the buyer. A chargeback can occur if a consumer disputes a purchase made using their credit card, claiming it was fraudulent or made without their knowledge or permission. 

Make The Switch To Bank Account Payments 

Offer the fastest, most cost-efficient funding option and start using VoPay’s e-Transfer for Business solution today. 

Easily automate recurring payments or request money owed with just an email. Go one step further and take control over your cash flow with real-time funding and eliminating cheque processing times. Interac e-Transfer for Business is Canada’s fastest-growing payment solution. With seamless integration and single-click checkout, it is a simple and secure way for businesses to move money in real-time.

Want to know more? Contact a payment specialist today!

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