Pros and Cons of Accepting Credit Card Payments

Last Updated: June 7, 2017

Customers expect rewards, cash back or air miles with every purchase they make - merchants, on the other hand, have fought for years to reduce 'payment processing' fees. If your business offers point of sale (POS) payment by Visa, Mastercard, Interac or other credit cards, getting informed on the pros and cons of these payment methods, and how best to handle payments received, makes good business sense.

**Recently Added: See the Regular vs. Premium Credit Card Rate Chart for Small Business CFIB (2011)**

On Merchant Fees:
“I am not sure many Canadians understand that there is a cost [to merchants] to using these cards ... and it's largely merchants who bear the costs and not every credit card costs the same fee to merchants.”

- Finance Minister Jim Flaherty

For most small business owners, accepting credit card payments is just another cost of doing business. Like other costs it should be monitored and (to an extent) controlled when possible. You may have been to retail stores in the past where certain payment options (usually credit cards) were not accepted, or where additional charges are transferred to customers who use plastic. Yes - that is one possible approach, but how would your customers perceive such a move? (Answer - you look cheap, they may go elsewhere). Here's a quick rundown of the basic payment options available to business owners in Canada:

Cash / Cheque:
(+) Minimal costs to you (the merchant). Your bank may charge you certain fees for depositing cash/cheques to your business bank account - but that's about it. 
(-) Fraud risks (counterfeit bills) and payment by cheque usually requires a certain level of trust between buyer and seller. Inconvenient to many customers who prefer not to carry cash, or who prefer to charge all purchases to a credit card.

Debit / Interac:
(+) Nearly everyone has a debit card, and most people are familiar and comfortable with this payment method. Fast transaction with minimal risk.
(-) Usually involves a fixed price per transaction (aprox. 10-15 cents). This might really add up if your business sells many low-priced items (i.e. coffee shop or newsstand). 

Credit Cards:
(+) Your customers may prefer to pay by credit card, as (depending on their card) they may earn anywhere from 0.5 - 2% back in rewards, cash or other incentives. Quick and efficient transactions that can be completed in person or over telephone / internet.
(-) It'll cost you. How much? From a recent
white paper written by Visa on the subject of 'interchange' (merchant fees):

"Interchange is not a single amount. There are a number of interchange rates and they may vary by the type of retailer, cost of the sale, payment product type, processing technology the retailer uses and region or country. For example, transactions at fuel merchants and grocery stores each possess unique attributes that may require different interchange categories and processing strategies. Similarly, the type of payment product used and how that product is used affect the interchange rate and processing requirements. The different rates are used to encourage product and market development; data quality; and risk management programs and tools."

Reading that probably left you with more questions than answers. Basically, most merchants only have a general idea of how much a credit-card transaction will cost them to process. Checking your statement at the end of the month is usually the only way to know exactly how much you are being charged.

One organization that has led the charge against merchant fees, is the Canadian Federation of Independent Business. As part of their media campaign against merchant fees, this quick explanatory video was created:


At the end of the day, if you want to be competitive (especially in a retail environment), you should be offering electronic payment options to your customers, or they'll find someplace that does. That said - you might want to take the advice of the video - and try mentioning your preferred payment method to your customers through in store signage or by discussing the issue with your regular customers. 

Stay informed on the merchant fee debate in Canada. Here are a few places to start: 

Merchants mount attack on rising credit card fees (Globe and Mail)
Credit card companies, competition watchdog face off over merchant fees (The Canadian Press)
Interchange: What it is. How it works. And why it is fundamental to the Visa payments system (VISA)
Merchant Solutions (Moneris)
What are these fees? (Stop Sticking it to us)

PHOTO CREDIT: Photo The Numbers Look The Same on Your Credit Card created by doyoubleedlikeme, available under a Creative Commons Attribution license. Last viewed on Jan 14, 2010.