On May 18th 2023, the Government of Canada announced that it will in fact deliver its 2023 budget commitment to change credit card transaction fees for small businesses in the country. They committed by finalizing new agreements with Visa and Mastercard while protecting consumer’s card rewards offered by Canadian Banks.
The reduction in fees agreed upon last month will apply to interchange fees paid by small businesses to credit card issuers. About 90% of businesses that accept credit cards in Canada will qualify for lower rates. Interchange fees will be reduced up to 27% from the existing weighted average. The Canadian government estimates about $1 billion in five years of total expected savings for small businesses.
The key points are as follows.
- Visa and Mastercard have agreed to reduce domestic consumer credit card interchange fees for:
- In-store transactions: at a reduction in an annual weighted average interchange rate of 0.95%
- Online transactions: by 10 basis points, with resulting reductions of up to 7%
- Visa and Mastercard have agreed to provide free access to online fraud and cyber security resources – aiding small businesses against fraudulent attacks and chargebacks while helping grow online sales
- Small businesses must qualify with each card network individually:
- Visa annual sales must be below $300,000 to qualify for lower Visa interchange fees
- Mastercard sales must be below $175,000 to qualify for lower Mastercard interchange fees
- Small non-profit organizations within these sales volume thresholds will also benefit from reduced rates
Chrystia Freeland, deputy Prime Minister and Minister of Finance said last month, “Small businesses are the bedrock of Canada’s economy and play an important role in ensuring the vitality of communities and local economies across the country. The new agreements secured with Visa and Mastercard will make credit card transactions fairer for small businesses, which have less bargaining power than larger merchants to negotiate lower rates. With lower interchange fees, small businesses will save money that they can use to grow their businesses and create more good jobs.”
There’s no doubt that this should help new and small businesses thrive when implemented next year. These commitments made by Visa and Mastercard to lower interchange fees are expected to not negatively impact other interchange fees paid by other businesses, nor will they affect consumer card rewards offered by banks. The government also expects that other credit card companies will follow Visa and Mastercards action to lower their own fees.
The interchange rate change is expected to come into effect in fall of 2024. For more info please visit the government of Canada’s website.