The selected issue from the Restaurants Canada website is entitled “Fighting the Credit Card Giants” which revealed the exorbitant costs of credit card fees, considered one of the highest in the world . Likewise, Restaurants Canada was noted to prod the federal government to regulate credit card fees to enable restaurants to compete equitably and generate higher profits. Upon closer examination, Restaurants Canada revealed that part of the credit card fees include cost of the meal, sales tax to be forwarded to the government, as well as server tips (Fighting the Credit Card Giants; Downs).
The article written by Downs entitled “What You Need to Know About Credit Card Processing” and published in The New York Times revealed the rationale for the excessive costs incorporated in credit card fees. An examination of the parties involved in the credit card transaction could be surmised as instrumental to the exorbitant costs. As stipulated, “there are four parties involved with every credit card transaction: the merchant receiving the payment (“merchant”), the bank that the merchant uses to provide processing services (“acquiring bank”), the bank that issued the card to the customer (“issuing bank”) and the customer (“customer”)”
Therefore, it could be deduced that the parties expecting payment have potentially lent money to the customer. As such, there are financial risks involved in these transactions. The greater the risks, the higher the expected returns. Likewise, according to Downs, there are factors that contribute to greater risks, such as the type of business which affects the interchange rate, as well as the risks of chargeback. All of these perceived risks are
duly compensated through charging higher fees.
With the announced proposal for the federal government to regulate credit card fees, the report written by Hampel, the author revealed that “credit card giants Visa and MasterCard have voluntarily agreed to cut the credit card fees charged to merchants to an annual effective rate of 1.50%” (par.
1). The positive action of the federal government is good news for businesses in the restaurant industry as the move would assist in improving profit potentials in this sector. Likewise, the immediate and urgent action implemented by the federal government confirmed the need for regulating the credit card fees, which, according to 72% of the members of the Canadian Restaurant and Food Association (CRFA), “did not understand how they were calculated” .
One commends the immediate positive action applied by the federal government to regulate credit card fees through initiating merchant banks, like Visa and Mastercard, to lower their fees. Other merchants that offer their services in Canada should also follow. The implications of the move would be instrumental in improving the financial condition of businesses in the restaurant industry, as well as the purchasing power of customers. Being charged lower for credit card expenses is tantamount to releasing funds for other productive purposes. The information in the article proved that through the efforts initiated by national associations like Restaurant Canada, pertinent issues concering financial, economic, social, or political aspects that impact on businesses and the consumers’ lives are effectively addressed. The immediate action made by the federal government evidently proved that policymakers and regulators urgently address pressing concerns that should help in improving the welfare of people.
Downs, P. "What You Need to Know About Credit Card Processing." 25 March 2013. The New York Times. 26 November 2014 <http://boss.blogs.nytimes.com/2013/03/25/what-you-need-to-know-about-credit-card-processing/>.
"Fighting the Credit Card Giants." 2014. Restaurants Canada. 26 November 2014 <https://www.restaurantscanada.org/en/issues/article/fighting-the-credit-card-giants-3003>.
Hampel, Emma Crawford. "Visa and MasterCard to slash merchant credit card fees." 4 November 2014. Business Vancouver. 26 November 2014 <http://www.biv.com/article/2014/11/visa-and-mastercard-slash-merchant-credit-card-fee/>.