The paper cheque is gaining back its popularity among small businesses as they look to offer more payment options to avoid the high transaction fees that come with accepting credit cards, according to a study by the Bank of Canada.
The survey, conducted by phone with 488 merchants with fewer than 50 employees and that are not part of a chain or franchise, noted that cheques have made a comeback in the transactions of these retailers in recent years, as first reported by Blacklock’s Reporter.
“Acceptance of cheques has increased in 2021–22 to 54 percent compared with the 2018 MAS finding (34 percent) but stayed below the 2015 retailer survey level (64 percent),” said the study, whose survey took place in autumn 2021 and spring 2022.
The use of cheques was highest in Atlantic Canada at 70 percent, followed by the Prairies (67 percent). Ontario and Quebec tied at 54 percent while British Columbia was the exception with higher-than-average cheque acceptance (41 percent in 2018), but now ranks at the bottom with 37 percent.
Regulating Swipe Fees
In 2021, the federal Department of Finance launched online consultations on the regulation of interchange fees on credit cards. No legislation has resulted as yet.According to Blacklock’s Reporter, Visa and MasterCard, which process 94 percent of all credit card transactions in Canada, collect an estimated $5 billion a year in fees imposed on retailers.
“The purpose of this bill is to regulate interchange fees, which for far too long have been negotiated behind closed doors at the banks,” Brunelle-Duceppe said.
“I point that out because SMEs [Small and Medium-Sized Enterprises] are relying more than ever on credit card companies, especially during COVID, without being able to do anything about it.”
‘No Economic Justification’ to Regulate
Jack Carr, professor emeritus of economics at the University of Toronto, has a different take. In his testimony before the Commons finance committee in June 2009, he argued that there are “flaws” in the arguments of those who said interchange fees are detrimental to the bottom line of merchants.“The first flaw is that merchants do receive benefits from payment card systems,” Carr said.
“They get increased sales and increased convenience. Increased merchant sales rise because when people use credit cards to make purchases, and larger purchases, they bring in new types of purchases, and you get increased sales because there are lower transaction costs.”
The professor compared the swipe fees with labour costs.
“When I go and fill up my car with gas, they don’t need as many employees because I pay myself. I put my card into the machine. If everybody paid cash, you would have huge lineups. Also, the merchants don’t have to hold cash balances, which generally are costly.”
He added that there is no economic justification for cost-based regulation.
“Cost is one factor, but it’s not the only factor. It’s a more complex system, and by limiting the justification of interchange fees only to cost, the argument fails to account for the respective benefits that merchants and cardholders derive from interchange fees,” he said.
“The third flaw is that retailers are not forced to accept credit cards as payment methods.”