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Small businesses in Canada will reap lower interchange rates in that country, the Department of Finance Canada announced Thursday. The deal suggests a similar reduction is possible in the United States, the Merchant Payments Coalition quickly responded.
Both Mastercard Inc. and Visa Inc. agreed to lower the domestic consumer credit card interchange fee for in-store transactions to an annual weighted average of 0.95%. The average interchange fee is 1.4% on a Visa credit card issued in Canada, Visa told the CBC. Interchange for online transactions made with a credit card will drop by 10 basis points, which could result in a reduction of up to 7%, the government agency says.
The new rates, slated to take effect later in 2024 to allow time to complete system updates, will apply separately on each network. Merchants with less than C$300,000 in annual Visa sales volume and those with annual Mastercard volume below C$175,000 will qualify for the new rates from each network. Nonprofit organizations with transaction volumes below these thresholds also quality.
“These new agreements will help more than 90% of credit card-accepting businesses in Canada qualify for lower rates and see their interchange fees reduced by up to 27% from the existing weighted average rate. These reductions are expected to save eligible Canadian small businesses about C$1 billion over five years,” the finance agency says.
Canada is not the first card market where the credit card brands have reduced their rates. In Europe, credit card interchange regulation took effect in 2015 with a cap of 0.2% for consumer debit cards and 0.3% on consumer credit cards.
The MPC, a trade group for merchants that advocates for lower interchange rates, was quick to suggest something similar could be done in the United States with a call to action by Congress to step in.
“If Visa and Mastercard can afford to reduce their swipe fees in Canada, there’s no reason they can’t do the same here,” MPC Executive Committee member and National Association of Convenience Stores General Counsel Doug Kantor said in a statement. “U.S. merchants and their customers pay twice as much as Canadians and seven times as much as Europeans. It doesn’t make sense that the country that invented the credit card and is home to the two largest card networks on the planet has the highest swipe fees in the industrialized world. It’s time for Congress to act and at least bring competition to U.S. swipe fees.” The MPC says the average U.S. credit card fee for Mastercard and Visa is 2.24%.
There is a bill pending in Congress, the Credit Card Competition Act, that could impose some price controls, but its progress has been minimal. Only U.S. debit card interchange is regulated under the Durbin Amendment to the Dodd-Frank Act.
