Credit card giants Visa and MasterCard have voluntarily agreed to cut the credit card fees charged to merchants to an annual effective rate of 1.50%, the federal government announced November 4.
The move will result in an average decrease in the amount of merchant fees paid of approximately 9.3% for all credit card transactions. The reductions for each different credit card types will be different, and the average includes premium card transactions.
Minister of Finance Joe Oliver applauds the move, saying the ultimate goal of these reductions is to keep consumer prices from increasing. He cautions the credit card companies that if they don’t stick to their agreements, the government “will take all necessary measures to keep prices low for all consumers.”
“If the reductions in interchange fees are not passed along to merchants or the overall cost of accepting credit cards increases at any time during the period covered by these commitments due to actions taken by Visa or MasterCard, the government reserves the right to rescind its acceptance of the voluntary commitments,” Oliver said.
The Retail Council of Canada (RCC) has expressed its approval of the move, calling this the end of a seven-year battle by the council; the council had started a campaign in 2008 called the “Stop Sticking it to Us Coalition” to fight high fees.
“For our merchants, this is an important first step towards ending the escalation of credit card fees that have been ballooning in Canada for the past seven years, fees that until today’s announcement went completely unchecked,” said RCC president and CEO Diane Brisebois.
“Essentially, the network providers and the banks were free to charge whatever rates they liked, and retailers simply had to bear the increased cost to their business,” continued Brisebois.
However, Brisebois cautions that this is just a “good start,” and explained that merchants in Canada are still paying some of the highest credit card fees in the world. She cites the fact that in France, retailers pay 0.28% of the purchase price on fees.
She goes on to say that all merchants will receive a benefit from this latest move.
Numerous business groups had previously expressed frustration with high merchant credit card fees, which many had called unfair.
“Credit card fees in Canada have spiralled out of control and are now among the highest in the world,” said Garth Whyte, president and CEO of the Canadian Restaurant and Foodservices Association (CRFA), in October 2013.
“Clearly there’s a problem when banks and credit card companies are making as much money on a restaurant transaction as the restaurateur is.”
He had also said that 93% of CFRA members were “very concerned” about the high fees, and 72% did not understand how they were calculated. He also said restaurateurs were frustrated by the fact that the fees also applied to sales taxes and server tips. At that time, the association estimated that credit card fees collected on sales tax alone just in the restaurant industry totaled about $40 million every year.
In March 2014, the British Columbia Supreme Court approved a $5 billion class-action lawsuit against credit card companies filed the owner of Vancouver-based furniture company Metropolitan Home, Mary Watson. This suit specifically related to the fact that merchant were forced to accept credit cards of all types, including premium cards, which charged retailers higher rates.
Oliver said American Express has not participated in this initiative because that company has a “different business model” compared with MasterCard and Visa.
“[American Express] negotiates its fee directly with merchants, and merchants know the cost each time they accept an American Express credit card,” he said.
“I am pleased to note that American Express has committed to maintaining its current business model.”
The commitment covers a period of five years, and reductions will begin by April 2015.