CBC News | Pete Evans | May 18, 2023

Image: Unsplash/Stephen Phillips – Hostreviews.co.uk

In a landmark agreement, Visa and MasterCard have consented to lower their interchange fees in Canada to below 1%.

• Interchange fees are paid by the merchant, but many have started to pass them on to consumers directly.  These fees, previously a point of contention for merchants, allow credit card companies to retain a percentage of every transaction.
  • This deal signifies an average in-store transaction interchange fee reduction to 0.95%, promising retailers at least $99 on a $100 purchase, as opposed to $97 in some instances.
  • This agreement, representing a 27% average decrease in fees (for merchants), is projected to result in savings of around $1 billion for retailers over five years.
  • It also aims to bring greater fairness to credit card transactions for small businesses, which traditionally have less negotiating power for lower rates than larger merchants.
  • The reduction in fees is set to impact businesses with an annual Visa sales volume below $300,000 and those doing less than $175,000 from MasterCard.

See:  Biden Proposes Cap on U.S. Credit Card Fees to Save Consumers $9 Billion

• What It Means:
  • This change will affect Canadian consumers, as merchants have recently been given the right to pass on these fees directly to them. While consumers might face higher costs because of the fees, the overall lowering of interchange rates may alleviate some of this burden.
  • This agreement is a significant shift in the credit card industry in Canada, bringing the country in line with many other jurisdictions such as the European Union, the United Kingdom, Israel, Australia, China, and Malaysia, that already cap interchange fees at less than 1%.
  • It underscores a commitment by the government to create a fairer environment for small businesses and addresses concerns regarding the disproportionate power of major credit card companies.
  • However, the implementation of the new fee structure is targeted for the fall of 2024, and organizations like the Canadian Federation of Independent Business (CFIB) are urging for an expedited timeline and broader inclusion of other card brands like American Express.

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