The federal government says it has hammered out the final details with Visa and Mastercard to lower credit card transaction fees for merchants, but small business advocates say the deal doesn’t go nearly far enough.
The deal concerns what is called an interchange fee, also known as a “swipe fee,” which sets aside a percentage of every sale for credit card companies and banks that issue the cards.
Until very recently, the fee could range from fractions of a per cent to more than two per cent for some premium cards.
And it’s not just an issue for small retailers either: Visa and Walmart waged a high-profile fight over the fees in 2017, which saw the world’s largest retailer briefly stop allowing Visa cards at any of its Canadian stores before the two sides struck a secret deal to settle the matter.
Walmart managed to cut a deal because it had the leverage to do so, but small businesses have long maintained the fee takes money out of their pockets — and those of their customers.
Canada has some of the world’s highest interchange fees in the world. When they’re imposed across hundreds of millions of transactions every year, “it is billions and billions of dollars that is collected from merchants across Canada every year,” said Dan Kelly, CEO of the Canadian Federation of Independent Businesses (CFIB).
Canadians who prefer to pay with Visa and MasterCard could get hit with extra fees starting Thursday. After a long legal battle over who pays certain credit card processing fees, businesses can now pass those charges — as much as two per cent per transaction — along to customers.
Prior to the deal announced this week, the average interchange on a Visa card in Canada was 1.4 per cent. As per the terms of the new agreement, the annual weighted average fee for in-store transactions will be reduced to 0.95 per cent, while the same fee for online transactions will be reduced by 10 basis points.
“For small companies, they’re going to see a specific reduction oriented at them,” Kelly said. “This has been a long time coming and we’ve been lobbying hard to make it happen.”
The agreement will also give small businesses free access to online fraud and cybersecurity resources.
Small businesses with a Visa sales volume below $300,000 a year will qualify, as will those with a Mastercard sales volume under $175,000 a year. The country’s big banks have “agreed to protect Canadians’ reward points,” as per the government’s announcement.
Not far enough
Earlier this year, the Convenience Industry Council of Canada (CICC), which represents more than 23,000 convenience stores and gas stations across the country, said the then-proposed deal won’t do much to help its members because of those revenue caps.
The threshold “effectively excludes any of our members from realizing any reductions,” the group told Finance Minister Chrystia Freeland when she announced in May that talks were underway toward a fee reduction deal.
Businesses that qualify will save a maximum of $1,080 annually — “a very small sum that will make a limited difference for both local businesses and consumers who are looking for lower prices,” the CICC said.
“Instead, this decision caters to the banks and credit card companies who continue to report record profits on the backs of our local businesses.”
Sara Jameson, a small business owner in Toronto, agrees that the deal as announced won’t do much, especially since a huge number of small businesses who need the most help won’t qualify.
Instead of qualifying based on the number of transactions with each card processor, Jameson said the rules should echo what the government says constitute a small business — that is, any business with between $30,000 and $5 million worth of total sales and fewer than 100 employees.
“This looks good for the government and it looks good for the corporations,” said the owner of Sweetpea’s floral design shop. “It looks great in a headline, but it’s actually not going to do us any good.
“Some of us are paying upward of several thousand a month in these transaction fees. We have to pass that along to our customers…. That then puts us [at a] higher price than the big corporations [so] we have to really appeal to our buyers to support us as opposed to getting it elsewhere,” she said.
Longstanding dispute
This week’s deal has come about because of a legal fight for more than a decade led by the CFIB that reached the first stage of resolution last fall, when rules were updated to start allowing merchants to pass on the cost of interchange fees directly to consumers.
That change has already started playing out at Canadian cash registers, with more and more companies opting to charge service fees commensurate with the interchange fees they have to pay.
And while Kelly is trumpeting the new fee deal as “a benefit to obviously small business owners, but for consumers as well” even he acknowledges it won’t provide any immediate relief.
The rebates aren’t scheduled to be in force until fall 2024.
“We’re still a ways out before any small businesses will actually benefit from the deal, but it is a big one,” he said.