By Patti Murphy
ProScribes Inc.
The Canadian government disclosed a "negotiated" agreement with Visa and Mastercard to lower credit card interchange fees paid by about 90 percent of small businesses north of the border. Not surprisingly, some U.S. merchants see this as an opportunity to press for price controls here as well.
"If Visa and Mastercard can afford to reduce their swipe fees in Canada, there's no reason they can't do the same here," said Doug Kantor, general counsel at the National Association of Convenience Stores. “It doesn’t make sense that the country that invented the credit card and is home to the two largest credit card companies on the planet has the highest swipe fees in the industrialized world.”
The Canadian Department of Finance revealed on May 18, 2023, that it had finalized a deal with Mastercard and Visa to slash credit card interchange by up to 27 percent from the existing weighted average for up to 90 percent of small businesses in the country. The reductions, effective in the fall of 2024, are expected to save eligible small businesses about $1 billion over five years, the Finance Department stated.
The two card companies have agreed to lower domestic consumer credit card interchange for in-store transactions from 1.4 percent to 0.95 percent, the Canadian government said in a statement. Interchange on domestic consumer online transactions will be reduced by 10 basis points, resulting in savings of up to 7 percent.
Additionally, Visa and Mastercard agreed to provide merchants in Canada with free access to online fraud and cyber security resources as a way of helping small businesses grow online sales while preventing fraud and chargebacks. The government said in a statement it "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 all small businesses will get the break, and each business will need to qualify with each network individually. The qualification threshold is yearly Visa credit card transactions totaling less than $300,000 (or about $221,000 U.S. dollars) and $175,000 ($129,000 U.S.) in Mastercard transactions.
Canada isn't the first country to regulate interchange. The European Union capped interchange (regardless of the merchant's size) at 0.3 percent for credit cards and 0.2 percent for debit cards. In Australia, credit card interchange is capped at 0.88 percent; debit card interchange cannot exceed 0.22 percent.
In the United States, interchange on retail consumer credit card transactions runs about 2.2 percent.
Debit card interchange has been regulated in the United States for more than a decade at the direction of the Durbin Amendment to the Dodd-Frank Act. And now, Senator Richard Durbin, the Illinois Democrat who authored that amendment, has credit card interchange in his sights. At this point, however, it seems like he’s not doing more than posturing.
Last year, Sen. Durbin, introduced the Credit Card Competition Act. Its primary mandate: that merchants be given access to networks other than Visa and Mastercard for routing credit card payments. The assumption being there are less expensive networks for merchants to choose from. The proposed bill, co-sponsored by Senator Roger Marshall, R-Kan., received immediate blowback.
The legislation, as written last year, would apply only to banks and credit unions with $100 billion in assets. Yet, the president of the National Association of Federal Credit Unions, which represents some of the smallest credit unions in the country, blasted the proposal in an editorial in RealClearMarkets.com. He described the legislation as “essentially a back-door price control on credit card interchange fees." And he warned of potentially dire consequences if merchants "choose cheaper, untested and less secure credit card networks.”
The Electronic Payments Coalition, a vocal opponent, sent a letter of opposition to lawmakers signed by over 170 organizations.
Even consumers are leery. Polling last fall by Morning Consult found that 74 percent of adults believe changing the technology that credit card companies use would affect the economy. Sixty-one percent said they didn’t expect any benefits from overhauling the credit card networks, with majorities of Democrats (53 percent), Independents (60 percent) and Republicans (58 percent).
Here’s the statistic I found most telling, however: 57 percent of consumers told Morning Consult they do not trust that merchants who wind up benefiting from their new-found routing choice will pass on their cost savings to customers.
That’s because consumers remember that most merchants didn’t bother to pass along savings from the Durbin Amendment cap on debit interchange. I credit the card brands, their bank partners and allies with keeping that fact alive and on the minds of consumers.
Sen. Durbin said he plans to reintroduce the Credit Card Competition Act during the current Congress, but he hasn't yet. Even if he does, chances of such legislation passing in a divided Congress are slim. True, Sen. Durbin did enlist one Senate Republican to back the bill last year, but there are 222 Republicans in the House, a dozen or so of which would also have to back the plan to secure passage. And that’s not going to happen. 
Patti Murphy is senior editor at The Green Sheet, and president of ProScribes Ink. The self-described payments maven of the fourth estate, Patti is also co-host of the Merchant Sales Podcast.
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