In what should be a coup for small retailers, Visa and Mastercard have both voluntary agreed to reduce their transaction fees for Canadian businesses.
Finance Minister Joe Oliver made the announcement today, saying that the agreement was reached voluntarily by Visa and Mastercard, whose users are responsible for 90% of credit card transactions in Canada.
“Visa and MasterCard submitted separate and individual voluntary proposals to reduce their credit card fees to an average effective rate of 1.50% for the next five years [...] In total, the two commitments represent a reduction in credit card fees of approximately 10%. These commitments represent a meaningful long-term reduction in costs for merchants that should ultimately result in lower prices for consumers.”
“This is an important first step towards ending the escalation of credit card fees that have been ballooning in Canada for the past seven years.”
As the government is wont to do, they emphasized that the savings could be passed on to the average consumer, but the immediate benefit will be for retailers.
The Retail Council of Canada (RCC) quickly stepped forward to claim victory in what they called a seven-year battle with credit card companies.
“For our merchants, this is an important first step towards ending the escalation of credit card fees that have been ballooning in Canada for the past seven years. Fees that until today’s announcement went completely unchecked,” said Diane J. Brisebois, President and CEO of RCC.
“Essentially, the network providers and the banks were free to charge whatever rates they liked, and retailers simply had to bear the increased cost to their business,” continued Brisebois.
“Even at these rates, Canadian retailers are still paying some of the highest credit card fees in the world. For example, merchants in France pay 0.28% of the cost of purchase compared to what will now be an average of 1.5% in Canada. These costs are ultimately borne by all consumers whether they are paying with cash, debit or credit.”
“Credit card swipe fees charged to Canadian retailers had been amongst the highest of anywhere in the world.”
The Small Business Matters Coalition, echoed the sentiment from the RCC saying that they reduction was welcome, but would like to see the fees further reduced to lessen the burden on small businesses.
“Credit card swipe fees charged to Canadian retailers had been amongst the highest of anywhere in the world. These fees had represented well over $5 billion in revenue for the credit card companies annually, while many small business retailers are barely surviving with razor thin margins,” said Gary Sands, Chair of the Coalition.
The Small Business Matters Coalition noted that while large companies can negotiate their own rates with credit card companies, small businesses do not have the same leverage.
The threat of regulation by a government focused on consumer advocacy is a clear influence over this decision, as alluded to by Minister Oliver in his statement.
“As a result of the voluntary proposals, there is no need for the Government to regulate the interchange rates set by the credit card networks.”
The changes are expected to be implemented before April 2015.