Deal reached by Ottawa, credit card companies to slash purchase fees

Ottawa instructed MasterCard and Visa to lower swipe fees collected on retail credit-card purchases. The outcome could claw back perks on some cards, experts say.
Ottawa has moved to lower fees credit cards and banks collect on retail purchases. THE CANADIAN PRESS/Ryan Remiorz

Canada’s major banks and credit card companies have reached a deal with the federal government to reduce fees charged to retailers for credit card transactions, sources close to the negotiations said.

The voluntary agreement means retailers from big-box chains to small mom-and-pop convenience stores across Canada could soon start saving hundreds of millions in fees paid to card networks like Visa and MasterCard and the banks.

And retailers suggest those savings will be passed on to shoppers in the form of lower prices – though that remains up for debate, experts say.

The deal, which has yet to be made public, will result in lower “interchange” fees charged to retailers when customers pay by credit card. The new interchange rate will also remain capped for a period of time, sources familiar with negotiations said.

Interchange fees currently range between $1.50 and $3 or more for every $100 worth of transactions, depending on the credit card.

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How much of a reduction in interchange rates Visa, MasterCard and the banks have agreed to accept wasn’t immediately known. But federal officials could release details of the agreement early next week, one person familiar with matter said.

Premium cards, costs

The Retail Council of Canada says premium cards that come attached to rich loyalty programs — cards which have flooded the market in recent years — have inflated interchange charges for merchants.

The high transaction fees commanded by such cards are split between the credit card networks – Visa and MasterCard namely – and Canada’s banks and credit unions, with the bulk taken in by the financial institution.

The country’s six big banks of TD, RBC, Scotiabank, BMO, CIBC and National Bank collect the lion’s share, using a portion to fund their own loyalty card programs, and the rest to boost their bottom lines.

Back and forth

The agreement comes after years of back-and-forth among retailers, the federal government, banks, credit card companies and the Competition Tribunal.

The federal Competition Bureau estimated in 2010 that credit card acceptance fees added up to $5 billion annually – a figure that has likely gone up since – with about $4 billion of that coming in the form of interchange fees.

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Last year, then-finance minister Jim Flaherty told the card companies and banks to work out a new, lower-cost framework or Ottawa would for them.

Governments in Europe and elsewhere have been moving to limit transaction fees associated with credit cards in recent years, concerned about their upward rise and impact on consumers.

There are roughly 76 million credit cards issued to Canadians, who use them to pay for about half their overall purchases.

The Retail Council of Canada says the rise of interchange fees has forced merchants to incorporate the added costs into prices, tantamount to a general tax on all retail purchases regardless of how a consumer chooses to pay.

The industry association estimates that as much as $500 million will be saved through reducing rates, and most of that will end up back in the pockets of shoppers.