A skirmish between the federal government and the country’s big credit-card companies over fees collected on retail purchases appears close to an end. And it might just save you a few bucks, as a result.
Ottawa is preparing to announce an agreement among the credit card companies, namely Visa Canada and MasterCard Canada, and the big banks that will claw back so-called “interchange” fees collected by the card networks from retailers whenever a customer uses their card.
The fees vary between $1.50 to as much as $3 on every $100 in sales.
Sources suggest MasterCard has proposed a “voluntary” solution to Ottawa after retailers and regulators at the Competition Bureau demanded lower fees – which they say have risen sharply in recent years, padding the bottom line for card companies and bank partners but serving to inflate costs for retailers.
“That’s been driving up merchants’ costs without any discernible increase in sales,” said Karl Littler, a government relations representative for thousands of Canadian retailers.
Littler said those costs – which amount to more than $4 billion annually – are being passed onto consumers.
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“This goes straight into retail prices. Consumers end up bearing the costs of interchange fees,” he said.
Banks profit
A portion of those fees are divided between the card networks – Visa and MasterCard – and the acquirers, or small number of firms that sign merchants up to the networks and provide them with the equipment.
The bulk, or about $3 billion, is collected by banks and credit unions who provide the credit cards to customers. The vast majority of that sum goes to the country’s big six financial institutions of TD, RBC, Scotiabank, BMO, CIBC and National Bank, where most Canadians hold their credit card accounts.
Part of the fees help fund the increasing array of loyalty programs offered by credit-card companies and the banks, while the balance goes to boosting earnings.
The government has been pressing the card companies and their bank partners to lower the fees they charge retailers for more than a year, while regulators at the Competition Bureau said the elevated rates may be anti-competitive – i.e. gouging retailers and consumers.
Sources suggest the announcement could come Friday.
Off the top
The fees in question may not seem like much, but they add up.
The Retail Council of Canada estimates a lowering of interchange fees by between 10 to 15 percent will save merchants as much as $500 million, which Littler said will go to toward reducing retail prices at the checkout.
A recent study from a similar government move to cap credit card interchange fees in Europe demonstrated 70 per cent of the savings was passed onto shoppers. The remaining 30 per cent was pocketed by retailers.
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