Deirdre McMurdy

Anyone who's ever had the pleasure of watching paint dry, knows what it can be like to sit through a Parliamentary or a Senate committee hearing.

In fact, if anything, the results of a fresh coat of paint are usually more readily apparent than are the benefits of hours of questions and answers on the Hill.

But every once in a while, there's an exception. And the recent Industry committee hearing into the fees that retailers - and ultimately Canadian consumers - have to pay on credit card transactions is one of them. First of all, there's the dollar value attached to the issue: Canadians paid about $4.5 billion in hidden credit card costs in 2007, an amount that's sharply on the rise in these hard times.

Secondly, just as the Parliamentary hearings into the matter were wrapping up, the federal Competition Bureau announced that it plans to look into the matter - including the allegation that recent increases in retail charges by both Visa and MasterCard may suggest price fixing. There's no question that retailers are currently being squeezed by weak consumer demand, razor-thin margins and cut-throat competition, and the dramatic increases in the cost of processing transactions is adding to that burden. It's getting to the point, according to Retail Council of Canada, where merchants will have no choice but to start passing along those costs even more aggressively to consumers.

"Retailers are pretty much the last people in the world to look for market intervention and regulation," says Peter Woolford, vice-president of policy for the Council. "They're the ultimate competitors and entrepreneurs. But things are reaching a crisis point." To accommodate consumer reliance on credit cards (about 65 per cent of all consumer payments are now done with plastic), retailers have to fork over almost two percent of the value of each transaction to the financial institution that has issued the card. At a time when embattled banks are looking for every possible source of revenue, those charges are on the rise. Furthermore, with only two major players dominating the market - Visa and MasterCard account for 80 per cent of the national credit card market. That means they have tremendous clout when it comes to shaping their own business environment.

Specifically, retailers are bothered by the recent proliferation of so-called "premium" credit cards that carry a much higher fee. Ostensibly intended for preferred customers (three per cent of the market was identified initially), it's now estimated that as many as half of all transactions are being done by these cards. Although they are very much like a standard credit card they do offer some incentives like loyalty points to consumers, but they also charge merchants about a quarter of a percent of the transaction value to process. "These cards were really the trigger for the retail revolt," notes Mr. Woolford. " It was a unilateral move made by a duopoly just because they can."

Those who have joined the Retail Council's attack on these steep merchant fees are advocating that Canadian lawmakers emulate the Australian model, which limits the amount that can be charged. While there's no question that Visa and MasterCard will fight against any sort of limits, especially given that the fees are so important in their competition to attract more issuers (banks, credit unions and their financial institutions). But at the same time as they fight the fires that are being lit on the borders of their business reach, they're also planning to expand into the territory of debit cards as well. Canadians' love for their debit cards is second only to that of the Swedes. In 2006 we completed 3.3 billion debit transactions worth $139 billion. As it stands, the debit card market is now in the hands of Interac, a not-for-profit monopoly that's jointly owned by all the financial institutions that have ATMs. All that may be changing, however, in light of Visa and MasterCard's stated ambition to get in the game, which has been extremely lucrative in the U.S.

Fearful of looming competition, Interac has formally applied to be cut free from it not-for-profit status, a move that would allow it collect even more in fees from retailers. The argument is that removal of restrictions would force Interac to compete with Visa and MasterCard, who routinely charge multiples of its fees. The collected fees are supposed to be earmarked for spending on new technology upgrades and innovation. But there's no question the prospect of another source of funds is attractive for the card issuers.For consumers, however, not so much.