Credit-card companies vow to charge Canadian small businesses lower fees

Businesses with $5 million in credit-card transactions could save $25,000 per year

Visa, along with MasterCard and American Express, have made new commitments to be accommodating on interchange fees, according to the federal government | Shutterstock

Three major credit-card companies have agreed to charge Canadian small businesses lower processing fees when accepting the cards, the Canadian government announced August 9.

Visa, Mastercard, and American Express all made commitments to make credit-card acceptance fairer, according to federal Ministry of Finance.

Visa and Mastercard will:

•reduce domestic consumer interchange fees to an annual average effective rate of 1.40% for a period of five years;

•narrow the range of interchange rates charged to businesses; and

•require annual verification by an independent third party, the government said.

American Express’ commitment was less clear but the government said that it will support the government’s objectives of greater fairness and transparency in the Canadian credit card market.

“This commitment recognizes the fact that American Express operates a unique business model with fees other than interchange fees,” noted the Ministry of Finance.

The estimated savings for small- and medium-sized businesses in Canada is $250 million per year, based on credit card sales of roughly $250 billion per year.

For a medium-sized business with credit sales of $5 million per year, a 10-basis-point reduction in interchange fees – equivalent to the new agreement – could allow for savings of up to $25,000 over five years, the Ministry of Finance said.

The Greater Vancouver Board of Trade (GVBOT) hailed the news.

“We are pleased that the federal government is listening to small businesses, and has worked with the major credit card companies to alleviate some of the costs facing small businesses operating in Canada,” said its CEO, Iain Black.

Chambers of commerce, such as the Kitsilano Chamber of Commerce, and the GVBOT have long pressed for credit-card companies to reduce merchant fees on small businesses by doing things such as bringing resolutions to the BC Chamber of Commerce, and Canadian Chamber of Commerce, in 2013. The Canadian Federation of Independent Business also lobbied for changes.

“This is a positive step, and a win for the entire chamber movement, but there are still further steps to take,” Black said.

“For one, as the Canadian chamber resolution states, we call for greater transparency, disclosure and flexibility, so that small business customers understand the full cost and obligation when they sign on as merchants with one of the major credit card companies.”