Friday, May 26, 2023
Small merchants north of the border will soon benefit from lower credit card interchange—a move the Canadian government said will save those businesses $1 billion over five years.
New interchange rates, negotiated between the Canadian government and Visa and Mastercard, and effective next year, will be 27 percent lower than the existing weighted average interchange for up to 90 percent of small businesses in the country, the Canadian Department of Finance said in a statement.
The two card companies agreed to lower domestic consumer credit card interchange for in-store transactions from 1.4 percent to 0.95 percent, the government said. Interchange on domestic consumer online transactions will be reduced by 10 basis points.
Visa and Mastercard also agreed to give small merchants free access to online fraud and cyber security resources, so those businesses can grow online sales while preventing chargebacks. What's more, Canadian banks have agreed to protect Canadians' credit card rewards points after the agreement takes effect. Typically, calls for regulated interchange in the United States are met with assertions that dramatic reductions in card rewards programs would ensue.
Small businesses will need to qualify with each credit card network individually. To qualify for the lower rates with Visa, under terms of the agreement, a business can't process more than $300,000 (roughly $221,000 U.S.) Visa card transactions in a year. The qualification threshold is lower for Mastercard, at $175,000 ($129,000 U.S.).
"The new agreements secured with Visa and Mastercard will make credit card transactions fairer for small businesses, which have less bargaining power than larger merchants to negotiate lower rates," said Minister of Finance Chrystia Freeland.
In a statement, the finance department said its successful negotiations with Visa and Mastercard followed through on a commitment made as part of the Canadian government's 2023 economic plan. But added that more could be done.
"As specified in Budget 2023, the government's expectation is that commitments by credit card networks to lower interchange fees for small businesses will not adversely impact interchange fees paid by other businesses," the department stated. "The government also expects other credit card companies to take similar actions to lower fees for small businesses, and that payment processors will pass these reductions on to small businesses."
Not surprisingly, U.S. merchants immediately jumped on the news, insisting the Canadian deal proves their assertions that U.S. merchants pay too much in interchange (or in the parlance of the merchant community, "swipe fees").
"If Visa and Mastercard can afford to reduce their swipe fees in Canada, there's no reason whey can't do the same here," said Doug Kantor, general counsel at the National Association of Convenience Stores. "U.S. merchants and their customers pay twice as much as Canadians and seven time as much as Europeans. It doesn't make sense that the country that invented the credit card and is home to the two largest card networks on the planet has the highest swipe fees in the industrialized world."
Kantor, a member of the executive committee of the Merchants Payments Coalition, added "It's time for Congress to act and at least bring competition to U.S. swipe fees."
Bipartisan legislation to regulate the credit card system was introduced in the last Congress. But that legislation had nothing to do with interchange. Rather, it sought to force more network competition, by requiring that card-accepting business be allowed to choose which network is used to clear transactions, with only one of those choices being Visa or Mastercard.
Many experts have said that if passed, the legislation, known as the Credit Card Competition Act, would be difficult to implement and have unintended consequences. Senator Richard Durbin, D-Ill., said he plans to re-introduce the legislation this year, but has yet to do so. Senator Roger Marshall, R-Kan., was co-sponsor of the original bill, and a similar bipartisan bill was introduced and died in the House during the last Congress. 
The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.
Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
