Free Flight on Air Miles? Not so free.

 

Like many of us, I have at least one credit card I like to use so that I can collect “points” and get a free flight occasionally. Many people are actually quite proud of the extent to which they save the air miles or points and get to fly for “free”.

What is actually happening here is that we are putting large sums of our own money into the pockets of credit card issuers in exchange for the occasional free flight. Many will argue that they don’t carry a balance on their card so they don’t pay any interest. There is only the nominal annual fee. That may be true, but that is not where they are getting your money.

Virtually all retailers and many other businesses are forced to accept credit cards due to pressure from their customers who are all eager to collect more air miles. To not accept credit cards would bring a quick end to most any retailer. However, in order for the business to do so, they must pay merchant fees to Visa and MasterCard. This is a cost of doing business and since virtually all retailers are paying the fees, these costs are inevitably factored into the higher prices that you pay to the retailer for your purchases. It is you, the customer, that really ends up indirectly paying the merchant fees in exchange for an occasional free flight.

These fees have been as high as 2% to 3% or more in Canada, far higher than in many other countries. There has been some recent change in Canada to reduce them to 1.5% for the next five years. A recent Business Vancouver article provides some background.

CBC News report also highlights some debate and finger pointing on whether the culprit for the high rates are Visa and MasterCard or the banks.

Hopefully more awareness of this issue will lead to a more competitive fee structure and, in the end, lower prices for Canadian consumers.