Canadian Small Businesses To Get an Interchange Cut From Mastercard

Small merchants that belong to the 109,000-member Canadian Federation of Independent Business will get interchange reductions of 12.5% or more on Mastercard purchases beginning April 3 under a deal announced Thursday by the CFIB and Mastercard Inc.

The new rates will be available to CFIB members through all Canadian merchant processors, including the federation’s referral partner, JPMorgan Chase & Co.’s merchant-acquiring subsidiary, Chase Paymentech.

The Mastercard-CFIB announcement comes as political pressures on credit card interchange grow in Canada. Visa Inc. and Mastercard in 2015 reduced their consumer credit card interchange rates enough to hit a targeted average of 1.5%, as called for in the first year of a five-year “voluntary” agreement struck in 2014 between the networks and the Department of Finance Canada. And merchant groups are pressing for further reductions.

Under the new pact, Mastercard will apply interchange rates normally given to large merchants in the top of four pricing tiers for Canadian merchants. According to the CFIB, the new rates will cut members’ acceptance costs on basic point-of-sale electronic transactions by 12.5%, and by as much as 22% for some transactions made with premium cards.

Chase Paymentech’s Canadian Web site says its current 1.46% Mastercard discount rate on retail consumer electronic transactions, excluding gas and grocery purchases, will be lowered to 1.28% of the sale for CFIB members. That compares with 1.44% for similar Visa transactions.

CFIB president Dan Kelly noted that members of the federation, Canada’s largest small-business trade group, generate more than $3 billion CAD in Mastercard sales annually.

“This new agreement with Mastercard is a big deal for small business,” Kelly said in a news release. “This is a significant step forward in Canada’s payment industry and serves as an important sign of progress in the relationship between payment companies, like Mastercard, and smaller merchants.”

Regarding a possible similar agreement with Visa, a CFIB spokesperson tells Digital Transactions News by email that “MasterCard was the first to come to the table with this deal for CFIB members. We are hopeful to see progress with Visa in the months ahead, but there is no proposal on the table at the moment.”

Brian Lang, president of Mastercard’s Canadian unit, said in the release that his company “is continuing its commitment to small businesses, which play a critical role in fueling the Canadian economy and local communities. By recognizing the collective contributions and strength of CFIB’s 109,000 members, we expect our agreement will help small businesses continue to grow and give them more opportunity to bring innovative products and services to Canadian consumers.”

A Mastercard spokesperson could not be reached late Thursday for further comment.

Since interchange is paid to card issuers by acquirers, which pass the cost on to their merchant clients, Mastercard’s small-business cuts will reduce revenues for the financial institutions that issue Mastercard-branded cards. A spokesperson for the Canadian Bankers Association says by email that the CBA “was not involved in the discussions surrounding the agreement” between the CFIB and Mastercard. “Likewise, in the past, the CBA has not been involved in interchange rate discussions with the federal government; interchange rates are set by the credit card companies, not banks.”

One of the most intense battles yet seen over payment card acceptance costs ended Jan. 6 when Wal-Mart Stores Inc. once again began accepting Visa cards at 19 Canadian stores where the giant retailer had banished them months earlier. Neither Visa nor Wal-Mart revealed terms of their accord.