This afternoon, Finance Minister Bill Morneau and Small Business Minister Mary Ng will announce that agreements have been reached with Visa and MasterCard to make a very modest 10 basis point reduction in average credit card interchange fees beginning in May 2020.
Retail Council of Canada (RCC) has a longstanding engagement with this issue and led a coalition of merchant associations that saw fees reduced in 2015 to an average of 1.50%, from levels that had previously been at 1.62% for Visa and 1.74% for MasterCard. The current “voluntary” agreements at the 1.50% level expire at the end of April 2020.
RCC has pressed the Government of Canada to make deeper reductions in interchange rates, given their cost impact on merchants and ultimately on Canadian consumers. We have also highlighted the contrast with other countries throughout the world, in which governments have been taking far stronger measures to rein-in runaway credit card fees.
While the Canadian government is at least moving interchange rates in the right direction, a reduction of a mere 10 basis points (i.e., 0.10%) to an average of 1.40% is far less than merchants might reasonably have expected. In perspective, it leads to a saving of only $100 for every $100,000 in credit card sales. Not only does that compare unfavourably with many other jurisdictions worldwide but it is actually a smaller reduction than the one achieved by the previous Canadian government (though the two are cumulative).
LIMITED DETAILS ON IMPLEMENTATION
Other than the 10 basis point reduction in the average interchange rate for each of Visa and MasterCard, there is no detail provided as to how this will be achieved in the specific rates paid on different card types (standard, premium, super premium), use types (e.g., chip and pin, online) and in different merchant settings.
When the last set of reductions were announced in late 2014, the networks had only six months or so for implementation by May 2015 and therefore provided detailed tables on which rates would apply by card type, merchant type and use type. This time, with 20 months to go until implementation, we do not expect the networks to publish their future rates concurrent with today’s announcement. RCC will advise members as soon as more information becomes available.
We do know that the government has pushed Visa, MasterCard to lower the cost of online transactions relative to in-store purchases but again, no detail is being provided today. Lastly, in the vein of “no details provided”, the government has also negotiated an as-yet-unreleased agreement with American Express with the aim of lowering the rates paid to Amex by small and medium-sized businesses.
In short, we have a firm announcement of a 10 basis point reduction by Visa and MasterCard and a firm date for that to take place on May 1, 2020 but otherwise no specifics as to how that will be achieved.
RCC will continue its assertive advocacy efforts to push for more meaningful reductions in credit card interchange.