No, Sur(charge): Two-in-five credit card holders would stop shopping at major retailers if hit with 1.5% fee

No, Sur(charge): Two-in-five credit card holders would stop shopping at major retailers if hit with 1.5% fee

Three-in-five with a points card say they would stop using it if surcharge became universal


December 6, 2022 – After the year that many Canadians have endured financially, for many the idea of paying a surcharge on regular credit card purchases may just be a swipe, tap, or pin pad too far.

The latest data from the non-profit Angus Reid Institute asks credit card holders – 95 per cent of Canadian adults – how the potential for a new credit charge surcharge might affect their purchasing behaviour. Three-in-ten (28%) say an additional 1.5 per cent surcharge on would push them away from patronizing small businesses in their community, while more than two-in-five (44%) would stop shopping at major retailers that charged the fee.

Some retailers have already begun to add such a charge to purchases following the settlement of a class-action lawsuit with Visa and Mastercard. Merchants must make the fee clear to the customer, but the risk herein is evident.

With respect to smaller local businesses, Canadians are more forgiving. More than one-in-ten (13%) say they would just absorb a 1.5 per cent fee in this situation, while three-in-five (59%) would use another form of payment. If the business were a major national or international retailer, 10 per cent would absorb the cost and fewer than half would break out cash or debit.

As the industry and consumers adjust to this new reality, credit card loyalty programs are at risk of being tapped out. Four-in-five credit card holders (82%) say their primary purchasing card is connected to a loyalty program. There is palpable concern that this increased fee may reduce or altogether mitigate that benefit. Just 16 per cent of loyalty program users say a surcharge of 1.5 per cent would not deter them from using their current card, while the majority (61%) say this would make them reconsider and do away with their current primary card.

About ARI

The Angus Reid Institute (ARI) was founded in October 2014 by pollster and sociologist, Dr. Angus Reid. ARI is a national, not-for-profit, non-partisan public opinion research foundation established to advance education by commissioning, conducting and disseminating to the public accessible and impartial statistical data, research and policy analysis on economics, political science, philanthropy, public administration, domestic and international affairs and other socio-economic issues of importance to Canada and its world.

INDEX

Part One: Putting it on credit

  • More than two-in-five use credit card “as much as possible”

Part Two: The surcharge problem

  • Surcharge would deter many from small business, more from major retailers

  • Three-in-five would give up current points card if 1.5% surcharge became universal

 

Part One: Putting it on credit

More than two-in-five use credit card “as much as possible”

The usage of cash in Canada, an already declining practice, plummeted during the first two years of the COVID-19 pandemic, with contactless payments picking up the slack. Credit card usage has risen over that same period, alongside credit card debt. This form of payment, convenient and potentially beneficial through loyalty programs, is near-ubiquitous in Canada. Just five per cent of Canadians say that they don’t have a credit card, while more than three-in-five (62%) say that more than half of their purchases are made with one:

Frequency of use is highly correlated with income level. For those in the lower income strata, use is occasional and often in case of emergency. For wealthier Canadians, credit cards are the primary form of payment:

At least seven-in-ten credit card users across all income levels are a part of a loyalty program.

Part Two: The surcharge problem

Surcharge would deter many from small business, more from major retailers

On Oct. 6, new rules were implemented in Canada that allow merchants to add a “credit card surcharge” to purchases. This, after more than a decade of lawsuits from small businesses in Canada against card providers Visa and Mastercard. Businesses argued that they should have the ability to add a surcharge to pass on the cost of transaction fees – charged by banks and credit card companies – to customers. Some businesses have implemented this new surcharge already, while many are hesitant.

Concerns about backlash from customers appear well founded. Asked how they would respond to a 1.5 per cent surcharge on their purchases, few Canadians say they would absorb that cost and use their card like normal, whether it was a small business or a major retailer charging it.

Three-in-five (59%) would use cash or debit instead if this was a surcharge from a small business, while 28 per cent say they would find another store to patronize. There are more than 1.2 million small businesses in Canada, employing more than two-thirds of the labour force.

In the case of a major retailer, airline, or telecom charging the same fee of 1.5 per cent, fewer are inclined to use another form of payment (46%) and more (44%) would stop shopping with that retailer:

The bad news for small business owners is that those who use their credit card most often are most likely to say that they would find another store to shop at if they were charged extra to use said card. That said, two-thirds (65%) of this group would either absorb the cost or use another form of payment.

The most frequent card users have less patience for larger companies adopting a surcharge. Half of this group (50%) say they would find another business to buy from if a major retailer charged them to use their credit card:

Regionally, small businesses are at risk with similar numbers of their potential customers. At least one-quarter in every province say they would shop elsewhere if they were charged a 1.5 per cent surcharge. Those in Ontario (17%) and Newfoundland and Labrador (20%) are most likely to say they would just eat the additional cost and use their credit card:

Those living in households with the lowest income levels are least likely to stop shopping at a major business such as a telecommunications company, national retailer, or airline if they were charged a 1.5 per cent fee to use their credit card (33% say this). Canadians with household income levels of more than $50,000 say they would take their business elsewhere at higher rates.

When it comes to small businesses, there is not the same variation in reaction by income. A similar proportion – approximately three-in-ten – of Canadians of all income levels would stop shopping at a small local business if it charged a 1.5 per cent surcharge (see detailed tables).

Three-in-five would give up current points card if 1.5% surcharge became universal

Loyalty rewards provide a significant incentive to use credit cards, but those bonuses would lose some – if not all – of their luster were credit card surcharges more common. If the 1.5 per cent surcharge were to become universal, three-in-five (61%) Canadians say they would cut up their points credit card. One-in-six (16%) would continue to swipe and tap their loyalty credit card.

Those in the highest income households are the most likely to give up their loyalty credit card if faced with a 1.5 per cent surcharge for every purchase at three-quarters (73%). However, across all income levels, at least half say they would stop using their points credit card in such a scenario:

Survey Methodology:

The Angus Reid Institute conducted an online survey from Nov. 28-30, 2022 among a representative randomized sample of 2,774 Canadian adults who are members of Angus Reid Forum. For comparison purposes only, a probability sample of this size would carry a margin of error of +/- 2 percentage points, 19 times out of 20. Discrepancies in or between totals are due to rounding. The survey was self-commissioned and paid for by ARI.

For detailed results by age, gender, region, education, and other demographics, click here.

For detailed results by credit card usage rate and loyalty points participation, click here.

To read the full report, including detailed tables and methodology, click here

To read the questionnaire in English and French, click here.

Image – Clay Banks/Unsplash

MEDIA CONTACT:

Shachi Kurl, President: 604.908.1693 shachi.kurl@angusreid.org @shachikurl

Dave Korzinski, Research Director: 250.899.0821 dave.korzinski@angusreid.org


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