The proliferation of premium card fees is the biggest contributor to these increases. Starting last fall, both Visa and MasterCard introduced new premium cards with more rewards points for cardholders at no additional cost. What every restaurant operator knows is there's no such thing as a free lunch. Merchants are stuck footing the bill for these perks. For my businesses, these premium cards are 12% to 30% more expensive to accept than the standard card. Because the fees paid to banks are so much higher, issuing banks are actively marking them and even automatically switching consumers to them. Because the perks are so generous, cardholders are using them.
If these increased premium card costs were offset by these cardholders purchasing more, as suggested by the card companies, that would be one thing, but this is not the case. In fact, credit card usage is actually down over the same period. What we are doing is paying for higher fees and less business.
Slide 11 puts into context the size of the bite that these fees take, especially the newly introduced fees. The situation is particularly dire in the restaurant industry. Restaurants are extremely competitive, with very thin margins.
In Newfoundland, where I operate my restaurant businesses, the situation is the toughest in the country, with an average profit margin of 2.1%. For that return, we invest capital, pay rent and utilities, employ staff, buy from our fishermen and our farmers, and promote and advertise. That 2.1% return for the industry is lower than the 2.2% merchant discount rate charged to us as on some credit card transactions.
Don't get me wrong. We're not asking the credit card companies to take a haircut because the times are difficult. What we're here fighting for is an end to the gouging of fees by this credit card duopoly. What choice do we have in accepting these higher fee cards? In a word, none.
Through our merchant agreements we are required by Visa and MasterCard to follow the “honour all cards” rule, to take all their credit card offerings. It is hard to refuse a legitimate payment method chosen by the consumer, especially since that consumer is probably unaware of the detrimental impact on the merchant and the inevitable boomerang effect in higher consumer prices.
Even if merchants were allowed to decline such higher-fee cards, it would be next to impossible for one of our thousands of food service workers to identify them from among 200-plus credit card products, and it would be very difficult for employees to explain to the consumer why their particular card is not accepted.