Summary

In order to meet its November 4, 2014 commitment to reduce its average interchange rate to 1.50%, Visa Canada is reducing rates on all consumer credit cards in all merchant categories. The new rates will come into effect on April 18, 2015 and can be expected to be in effect for a period of five years, absent further reductions.

Reductions are fairly minor in categories already enjoying preferred rates, i.e., Visa’s Tier 1, Tier 2, Grocery and Gas categories. These reductions range from 3 basis points (bps) to 5bps (representing a reduction of less than 3% from current rates). The largest reductions are made to the Electronic (i.e., card-present) and Standard (i.e., card not present) categories, with reductions of between 12bps and 20bps (7% off current rate levels). Merchants benefiting from these changes would have net Visa sales under $850 million.

While Visa has also announced the April 18, 2015 introduction of reduced rates for corporate and purchasing cards in certain circumstances (i.e., enhanced data and large-ticket purchases), these were, in fact, previously announced changes, first communicated on July 14, 2014.

Background

On November 4, 2014, agreements were announced by each of Visa and MasterCard to reduce their respective interchange rates on consumer credit cards from current levels to an average of 1.50%. These reductions will initially be for a period of five years, commencing April 2015.

For Visa, this means a 7% reduction in its current average rate (down from 1.61%). For MasterCard, this means a 14% reduction in its current average rate (down from 1.74%).

The government has announced these two agreements, taken together, as being a 10% reduction, whereas RCC calculates its overall impact as a 9.3% reduction from current levels. Over five years, merchant savings will amount to approximately $1 billion on Visa and a further $1 billion on MasterCard.

New Rates

On April 18, 2015, the following rate reductions will take effect.

Performance Tier 1 (Visa spend >$2 billion)

Classic Infinite Infinite Privilege
Current to April 17, 2015 Tier 1 >$2 billion Visa spend 1.40% 1.60% 2.00%
April 18, 2015 Tier 1 >$2 billion Visa spend 1.37% 1.56% 1.95%
Reduction in basis points 3bps 4bps 5bps
Reduction % of current rate 2.14% 2.50% 2.50%
Performance Tier 2 (Visa spend >$850 million)

Classic Infinite Infinite Privilege
Current to April 17, 2015 Tier 1 >$850 million Visa spend 1.45% 1.65% 2.00%
April 18, 2015 Tier 1 >$850 million Visa spend 1.41% 1.61% 1.95%
Reduction in basis points 4bps 4bps 5bps
Reduction % of current rate 2.76% 2.42% 2.50%
Consumer Electronic (a.k.a. card-present transactions)

Classic Infinite Infinite Privilege
Current to April 17, 2015 Consumer Electronic 1.54% 1.74% 2.25%
April 18, 2015 Consumer Electronic 1.42% 1.61% 2.08%
Reduction in basis points 12bps 13bps 17bps
Reduction % of current rate 7.79% 7.47% 7.56%
Consumer Standard (a.k.a. card not present transactions, including online)

Classic Infinite Infinite Privilege
Current to April 17, 2015 Consumer Standard 1.65% 1.85% 2.65%
April 18, 2015 Consumer Standard 1.52% 1.71% 2.45%
Reduction in basis points 13bps 14bps 20bps
Reduction % of current rate 7.88% 7.57% 7.56%
New Rates for Supermarket and Petroleum

Rates have been lowered for grocers and petroleum merchants. The rate reductions are comparable to those in Visa’s Tier 1 and Tier 2 categories.

Grocery

Classic Infinite Infinite Privilege
Current to April 17, 2015 Industry Program Grocery 1.36% 1.56% 2.00%
April 18, 2015 Industry Program Grocery 1.33% 1.52% 1.95%
Reduction in basis points 3bps 4bps 5bps
Reduction % of current rate 2.21% 2.56% 7.55%
Gas

Classic Infinite Infinite Privilege
Current to April 17, 2015 Industry Program Gas 1.21% 1.41% 2.00%
April 18, 2015 Industry Program Gas 1.18% 1.37% 1.95%
Reduction in basis points 3bps 4bps 5bps
Reduction % of current rate 2.48% 2.56% 2.50%

New rates have also been introduced for Recurring Payments (Classic 1.37%, Infinite 1.56% and Infinite Privilege 1.95%) and for Emerging Segments, e.g., charities, the MUSH sector and utility payments (Classic 0.98%, Infinite 1.17% and Infinite Privilege 1.95%).

Other Issues

An independent auditor will ensure that each network complies with the new 1.5% benchmark rate. The government has made it clear that non-compliance by the networks will likely lead to regulation.

The government will take the steps necessary to ensure that acquirers pass on these fee reductions, whether by mandating that network rules must require processors to pass on the fee reductions and/or allowing merchants to cancel acquirer contracts without penalty where said acquirer does not pass on the full fee reduction.

For further detail, please contact Karl Littler at Retail Council of Canada:
Office: 416-467-3783 | Mobile:416-906-0040 | Email: [email protected]