In a landscape where accepting credit cards is essential for businesses, a recent deal to lower Visa and Mastercard payment processing fees in Canada has sparked debate. While the agreement signifies a step towards reducing merchant processing costs, critics argue it falls short of providing substantial relief for many retailers.
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Understanding the New Deal
The agreement caps interchange fees, commonly known as swipe fees, at 0.95% but only for eligible businesses. Previously, these fees varied widely, with some premium cards charging more than 2%.¹ These fees are a significant part of operating costs for businesses, especially small retailers, who have long argued that the fees unfairly divert profits from them and their customers.
The Challenge for Small Businesses
Small business advocates have voiced concerns that the deal doesn’t go far enough.³ Businesses with a Visa sales volume below $300,000 and those with a Mastercard sales volume under $175,000 are eligible for the reduced fees. However, many small businesses exceed these thresholds, leaving them ineligible for the reduced rates. The Convenience Industry Council of Canada (CICC) emphasized that this threshold excludes many of its members from benefiting from the reductions.²
The Impact on Consumer Prices
Retailers have been grappling with high interchange fees, often needing to pass these costs onto consumers. This practice has led to higher prices, affecting the competitiveness of small businesses compared to larger corporations. The new deal, while reducing fees for some, does not fully alleviate this burden, potentially leading to continued price hikes for consumers.
Comparing Canada’s Fees with Global Standards
Canada’s interchange fees are among the highest globally. With billions of dollars collected annually from merchants, the reduction in these fees, even if limited, is a step in the right direction. However, the deal’s scope suggests more work is needed to align Canada’s payment processing landscape with more affordable global standards.
Eligibility Criteria: A Bone of Contention
The deal’s eligibility criteria have been a point of contention. Small business owner Sara Jameson suggests that the criteria should reflect the government’s definition of a small business – any business with annual sales between $30,000 and $5 million and fewer than 100 employees.¹ This change could broaden the deal’s impact, offering relief to a larger number of small businesses struggling with high transaction fees.
The Long-Term Outlook
Despite the immediate limitations, the deal represents progress in a longstanding dispute over interchange fees. It sets the stage for potential future negotiations that could further reduce fees and broaden eligibility. The impact of this deal on the payment processing landscape in Canada will be an important area to watch.
The Way Forward for Retailers
For retailers, navigating the complexities of merchant processing and payment solutions remains crucial. Staying informed about changes in interchange fees and exploring various payment gateways and systems can help businesses optimize their operations and manage costs more effectively.
The recent deal to lower payment processing fees by Visa and Mastercard is a mixed bag for Canadian retailers. While it provides some relief, its limited scope means many will continue to face high costs associated with accepting credit cards. As the dialogue continues, the hope is for more inclusive and impactful solutions in the future.
Footnotes:
- Jenna Benchetrit, Pete Evans, CBC News, “Deal to lower Visa, Mastercard processing fees will come up short for many retailers, critics say”, Dec 09, 2023. CBC News Article
- Government of Canada, “Government of Canada announces finalized agreements with Visa and Mastercard to lower credit card transaction fees for small businesses”, Dec 05, 2023. Government of Canada News Release
- CTV News, “Budget 2023: Canada’s credit card fee relief”, CTV News Article