Ottawa unveils lower credit-card fees for small businesses, but some industries say measures fall short

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People walking past local stores on Yonge street in Toronto. Under new rules announced by the federal government, businesses that receive less than $300,000 in annual revenue through Visa credit cards and less than $175,000 in annual revenue from Mastercard customers will qualify for credit card fee reductions.Ammar Bowaihl/The Globe and Mail

The federal government announced the details of a long-promised reduction in the credit-card transaction fees that small businesses pay, but only the tiniest businesses will likely see any benefit.

The Liberals have promised since the 2019 election to force credit-card companies and banks to charge lower transaction fees to businesses when they take customers’ payments. Last fall, the government even threatened the financial industry with new regulations to get a deal. In the 2023 budget table in April, Ottawa said a deal with Visa and Mastercard was forthcoming, but the details were not released until Thursday.

Businesses that receive less than $300,000 in annual revenue through Visa credit cards and less than $175,000 in annual revenue from Mastercard customers will qualify for the reductions. Those businesses will see their average interchange fees capped at 0.95 per cent of in-store purchases and reduced by 10 basis points on online purchases. (A basis point is 1/100th of a percentage point.) The average interchange rate for all businesses in Canada is 1.4 per cent, but varies widely depending on geography, industry and type of payment.

The issue is politically complicated because banks use the revenue from interchange fees to fund credit-card reward programs, so they could choose to take away customers’ points if the fees were sharply reduced.

Finance Minister Chrystia Freeland said at an event in Brampton, Ont., that the negotiations with credit-card companies were “extremely challenging” because of the various financial players involved in setting the very complicated fee structures.

“I think we all love the small businesses that are the heart of our local communities,” Ms. Freeland said. “I think a lot of Canadians really love their reward points, too. And so coming up with a compromise that lowers fees for the greatest number of small businesses, the ones that need it the most, while ensuring that the Canadians who love their reward points can still have them, that is our objective.”

The government said Canadian banks have agreed to “protect” customers’ loyalty points. The Canadian Bankers Association declined to comment on Thursday’s announcement.

Reaction from business groups was mixed.

Dan Kelly, president of the Canadian Federation of Independent Business, was part of the announcement with Ms. Freeland and Small Business Minister Mary Ng and praised the deal. “For small businesses, this will be a significant reduction in the fees they pay,” he said.

Many industry-specific associations, however, said the sales threshold was so low that many businesses would not qualify.

Anne Kothawala, chief executive officer of the Convenience Industry Council of Canada, said the vast majority of convenience stores will not qualify and those that do will see only small reductions in fees.

“Credit-card fees represent the second-highest cost to convenience stores, next only to payroll,” Ms. Kothawala said. “Even a qualifying business will only see a maximum $1,000 reduction to their bottom line. This is hardly the relief we were promised.”

Gary Sands, senior vice-president of the Canadian Federation of Independent Grocers, said many of his members will also not qualify, and they will continue to pay fees that are higher than large businesses.

“Our battle for fairness will continue until we bring our rates to a level that is similar to the rates that are indefensible lower than large businesses,” he said.

Karl Littler, senior vice-president for public affairs at the Retail Council of Canada, said the $200-million in business savings estimated by the government were only a tiny portion of the estimated $10-billion banks make from interchange fees each year.

The government said it hoped other credit-card companies, such as American Express, would also reduce transaction fees. The new fee reductions are scheduled to take effect in the fall of 2024.

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