Credit card firms to trim merchant fees, but some retailers ‘underwhelmed’

Ottawa announced Thursday it has reached voluntary, five-year deals with Visa, MasterCard, and American Express to cut fees by about 10 basis points. (Pixabay photo)

OTTAWA – Major credit card companies have struck an agreement with the federal government to trim the fees they charge to merchants in a move Ottawa hopes will provide a boost to small businesses.

Ottawa announced Thursday it has reached voluntary, five-year deals with Visa, MasterCard and American Express to cut fees by about 10 basis points. Finance Minister Bill Morneau, who unveiled the deal at an Ottawa grocery store, said he expects the agreements to help small and medium-sized businesses save a total of $250 million per year.

“That’s a big difference for companies,” said Morneau, who billed the change as part of his department’s effort to listen to the concerns of Canadian business owners about staying competitive.

“Today, is one part of responding to those competitiveness challenges.”

Starting in 2020, Visa and MasterCard will reduce the fees they collect from businesses to an average annual effective rate of 1.4 per cent – down from 1.5 per cent – and narrow the gap between the highest and lowest rates they charge retailers. American Express has agreed to provide more fairness and transparency as part of a separate voluntary commitment that recognizes its unique business model.

But some had hoped Ottawa would lower the rate even further.

A spokesman for the Retail Council of Canada said he was “underwhelmed” by the scope of the expected change because it would amount to just $100 worth of savings for businesses for every $100,000 worth of credit-card sales.

“In the sense that the trajectory is in the right direction, that part’s good,” said Karl Littler, vice-president of public affairs.

“(But) we see this as a pretty small step relative to what might have been done.”

Littler said there are far lower interchange rates in many other jurisdictions around the world.

The head of the Canadian Federation of Independent Business called the changes “positive news,” particularly because they will provide predictability for small and medium-sized firms when it comes to how much credit card fees will cost them going forward.

Dan Kelly, the federation’s president and CEO, said other jurisdictions like Australia, parts of the European Union and New Zealand have lower interchange rates. But he added that there can be unintended consequences when governments regulate rates because bankers can always find other fees to increase as a way to compensate for lost revenue.

“I credit the government on this one for listening to smaller merchants and providing some decent relief,” said Kelly, who is often a vocal critic of the federal government.

Shanna Munro, the president and CEO of Restaurants Canada, said in a statement that the change “is a step in the right direction.” She added that 80 per cent her association’s 30,000 members say interchange fees hurt their bottom line.

“We will continue to work towards achieving greater relief as soon as possible,” Munro said. “Small- and medium-sized businesses struggle most with these fees.”

The government hopes the extra funds will encourage owners to invest, expand and create jobs.

Another goal of the lower interchange rates is to enable smaller firms to avoid being at a big competitive disadvantage compared to larger companies, which have more leverage in negotiating with credit card firms for reduced fees.

Morneau, who was joined for the announcement by Mary Ng, the new minister for small business and export promotion, said the reduction could also help consumers because businesses will be able to keep prices lower.

In November 2014, Visa and MasterCard voluntarily agreed to reduce their average effective fees to 1.5 per cent over five years – a period that began in April 2015.

Morneau announced in September 2016 that an independent audit found that the companies had met their respective commitments. At the time, the government also said it would conduct a review to ensure there was adequate competition and transparency for businesses and consumers when it comes to credit card fees.