A Simple Guide to Canada Credit Card Processing

As the use of cash continues to decline in Canada, credit cards have become one of the most commonly used methods of payment for daily transactions. From the rewards associated with particular consumer credit cards to the ease with which small businesses can keep checkout lines moving efficiently, everyone benefits from paying by credit card. 

Canadians are using credit cards in record numbers, with 75.8 million Mastercard and Visa cards in circulation in Canada alone. While credit cards are common around the world, not everyone is familiar with everyone and everything involved in the processing and completing a credit card transaction. 

With the expansion of ecommerce and the advantages of digital wallet payments, there are rising concerns over security and the need for secure payment methods. Understanding how credit card processing works - when much of it is unseen - can help instill confidence in your customers that payments are authorized quickly and securely. 

Canada Credit Card Processing Basics: the customer and the merchant

The main parties involved in a purchase are the customer and the merchant. A customer uses their credit card to purchase goods or services, while the merchant providing those goods or services accepts payment - through a point-of-sale terminal, mobile or online payments.

After a customer has decided to purchase goods or services from a merchant with their credit card, the payment needs to be authenticated before the transaction is fully complete. When the customer uses a credit card terminal to pay for a purchase, the merchant’s POS system captures the account information and the transaction amount and transmits it securely to the acquirer.

Who is the acquirer?

The acquirer, sometimes known as the payment processor, is responsible for facilitating the merchant’s ability to accept the credit card payment. Moneris is an example of an acquirer.

The acquirer asks the customer’s credit card company, Mastercard, for example, to submit and receive authorization from the customer’s issuer that the customer has the required funds available to make the purchase.

What does a credit card issuer do?

The issuer is the financial institution that issued the card to the customer. The issuer either authorizes or declines the transaction and sends confirmation of its decision back to the merchant electronically via the acquirer.

Once the transaction is complete, the financial institution routes payment for the goods or services to the merchant’s acquirer. The acquirer is responsible for depositing the payment into the merchant’s account - also referred to as the settlement process.

Digging deeper into Canada credit card processing

The benefit of processing payments with credit cards is that the settlement process is quick and painless. It enables transactions to be consolidated effortlessly to the merchant’s account. While it may sound complicated, these parties all work together to ensure the customer experience goes smoothly, and the payments get to the merchant in a seamless and organized way.

Common credit processing fees

Credit processing fees in Canada include several components.

• Payment Processing Fees: Charged by payment processors like Moneris for handling credit card transactions. The frequency of these fees depends on your billing cycle.
• Interchange Fees: These are the bulk of credit card processing fees, paid to card associations and ultimately to the card's issuing bank. These fees are higher for online or over-the-phone transactions than in-person transactions due to higher security risks.
• Assessment Fees: Small fees charged by card associations based on monthly transactions.
• Terminal Fees: For physical store locations, terminal fees apply to the POS systems that handle payments.
• Payment Gateway Fees: For e-commerce businesses, link the merchant account to the digital shopping cart.
• Incidental Fees: Applied in specific scenarios like disputed transactions (chargebacks), insufficient funds, or not meeting minimum requirements.

Factors for Calculating Credit Card Fees

1. Type of Transaction: In-person transactions typically incur lower fees than online or over-the-phone due to lower fraud risk.
2. Type of Card Used: Credit cards offering rewards like travel points tend to have higher interchange rates.
3. Credit Card Network: Different networks may have varying fee structures. American Express, for instance, serves as both the card network and the issuer, with a fee structure different from traditional interchange fees.

Types of Credit Card Processing Fees

• Flat Pricing: A consistent rate plus a flat fee per transaction.
• Tiered Pricing: Rates vary based on the type of credit card and the transaction. Tiers include qualified, mid-qualified, and non-qualified rates.
• Interchange-Plus Pricing: Often the least expensive option, though rates can vary significantly based on several factors.

To effectively manage and potentially reduce credit card processing fees for your business in Canada, consider the transaction environment (in-person vs. online), mitigate risks of chargebacks, and regularly review your statements. Implementing strategies to lower these fees can lead to significant savings over time.

The information in this article is provided solely for informational purposes and is not intended to be legal, business or other professional advice or an endorsement of any of the websites or services listed.