November 23, 2023
by David Goodale
What is the Canadian Code of Conduct for Credit Card Processing?
(Slightly edited from video transcript for greater readability)
Key Takeaways
Hello, David here at Merchant-Accounts.ca. Today I'm tackling the topic of what is the Canadian Code of Conduct for the credit card processing industry. Stay tuned, we'll dig in in one second.
Code of Conduct
The code of conduct was implemented in Canada because some credit card processors unfortunately were not treating merchants right. It's worth saying it wasn't every credit card processor, but some particularly bad eggs had unethical and unfair practices both around pricing and around contracts. These contracts could would be unfair to merchants. The Canadian government stepped in and created a standard that all credit card processors in Canada must now follow.
The first way that it cleaned up the act of some payment processors was around contract renewals. Some processors would stick merchants on these long-term contracts and they'd make it hard to cancel. For example they would say: "hey, you can send your notice of cancellation, but you have to do it within 30 days of the expiry of your contract."
If you were on a three-year term, at the end of those three years, you'd have this 30-day window when you could send in your cancellation notice, and if you didn't do it, you would be auto renewed for another three years. It was pretty unfair. Now that's been addressed because the longest that your contract can be renewed for now is six months. If you want to cancel, you can provide notice of that at any time during your contract. If you started today and you were on a two-year contract term and you emailed your processor tomorrow saying, "hey, at the end of my two years I want to cancel", you're golden. It made it a lot easier and a lot more merchant-friendly, but probably the best changes were all around pricing.
Misleading pricing models
There used to be a very popular pricing model called Qualified and Non-qualified pricing, and it was extremely misleading. I like to mention at Merchant-Accounts.ca, we never had that pricing practice. We only ever had flat pricing or we had had interchange plus pricing.
I have other content on the channel about Qualified and non-qualified pricing. The short version is Merchants got offered a rate that sounded amazing, for example 1.49%, but then they would never actually qualify for that rate. It was very merchant-unfriendly. One of the things, first, the code of conduct fixed is when you apply on the very first page of your merchant agreement, there's a summary box. That summary box has a whole bunch of relevant, important information that you're going to want to have.
First of all, it'll show you the effective rate for every single card type that you'll process.
Now, there are Visa standard cards, there are Visa Gold Cards, Visa Infinite, MasterCard core, and MasterCard Infinite Pro. There are lots of cards, I don't have to name them. You want to know if somebody walks into your store or goes to your website with an expensive card, how much it's going to cost you. You need to pay attention to that summary page, which also includes other relevant information like the duration of your contract term in plain English, the monthly minimum if you're going to be charged a monthly minimum, and any other administration fees. That's made it so much easier for you to negotiate effectively because when you get your application paperwork, look at that summary page. If it's not saying what you expect, don't sign it, send it back.
Rate increases
Another benefit of the coded of conduct related to pricing that's being done is you get a minimum 90-day notice for any new fees.
If your credit card processor is going to increase your rate, first of all, they have to tell you at least 90 days ahead of time.
Secondly, when they do, and this is probably the best thing of all in the code of conduct when you get a notice of a rate increase, you can walk away penalty-free. It doesn't matter if you have three years remaining on your contract, you can get out. Now, the only exception to that is interchange plus pricing because, with interchange plus pricing, it's not a credit card processor increasing your fee.
I don't want to get too deep into it here, but Visa and MasterCard set the cost to payment processors across Canada. At the time of recording this, a Visa core card, including the assessment fee is 1.5%. It's just a point of reference.
If Visa were to adjust that up to 1.6%, we can't stop that. That's coming from the card brand. You can't cancel if there's an increase in interchange, but if your payment processor marks up your rate, even one more penny, you can walk away absolutely penalty-free.
Another good tip directly related to that is, that interchange plus pricing still provides benefits because if interchange is lowered, sometimes Visa, and MasterCard, lower interchange fees. By the way, this is addressed once or twice per year. If they lower it and the cost savings aren't passed on to you, guess what? Once again, you can cancel completely penalty-free. It's an amazing benefit.
Now I will say that there are some other elements to the code of conduct, which are more retail and point-of-sale based. This is more for point-of-sale machines. I'll give you an example, if you want to accept Visa credit cards, but not Visa debit cards because if somebody's paying with a debit card, you would prefer the payment to be on an interact debit card. You can do that. You get to choose which type of cards you can accept the card brands and your credit card processor cannot dictate that to you.
Another point-of-sale item is you can now offer discounts for different payment types. Back in the day, there were some arguments back and forth I should call it about can you offer a discount for cash payments? Well, the answer is yes you can. You can do anything you want with any type of card type or payment type, even cash that you want, which empowers you as a business owner.
There are some other points of sale-related stuff, but Merchant-Accounts.ca, we're an e-commerce payment processor.
Conclusion
The real wins are a clear explanation of all the fees right on the front page of the contract that is worth its weight and gold, your contract cannot automatically be renewed on a long-term contract. Most importantly, you can walk away completely penalty-free if you ever have your rates increased. I hope this was helpful. I hope it clarified a little bit about what the code of contact code of conduct means, and it is a very empowering tool for Canadian merchants. Thanks for watching. Have a nice day there. Bye now.
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My name is David Goodale, CEO at Merchant Accounts.ca. I launched our business in 2001 and have over 20 years of expertise in the field of online payments. If you have a payments related question or project, and especially if it relates to multi-currency or international e-commerce don't hesitate to contact me. I'm always happy to help with an honest opinion, and enjoy chatting with folks from interesting businesses.
Toll free: 888-414-7111 ext. 5
Direct: (905) 901-2254
david.goodale@merchant-accounts.ca