March 27, 2023

Business groups are demanding action from the government regarding credit card swipe fees

Federal lobbying records show that major credit card companies such as Visa and Mastercard have signed up to talk with the government about plans to lower credit card processing fees.John Raoux/Associated Press

Business groups are calling for action on credit card swipe fees, saying the federal government has reneged on promises to lower them.

In the 2021 and 2022 federal budgets, the Liberals promised to work with the financial industry to lower transaction costs for merchants and better align fees paid by small businesses with big businesses, which have more bargaining power with card issuers. The issue is politically sensitive for the government because banks use the fees to fund loyalty programs, so the Liberals have also promised to protect Canadians’ rewards points in the process.

But before the federal government released its autumn economic report on Thursday, some business groups say action in this area is long overdue and companies are unable to meet the costs of increasing credit card use.

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“There has been virtually no progress,” said Dan Kelly, president of the Canadian Federation of Independent Business, which has lobbied the government to prioritize credit card payments in this week’s mini-budget. “I hope this comes out and I really hope it’s not just another vague commitment to do something. …I have many businesses that say they spend more on credit card processing fees than they actually pay for the business as an owner.”

In 2020, Canada’s fees were reduced to an average of 1.4 per cent of each transaction, down from 1.5 per cent, following a voluntary five-year agreement between the government and credit card companies. But that’s an average. The fees that merchants pay for credit card purchases vary widely depending on factors such as when the sale is made and what card the customer uses. Interest rates can be over 2 percent.

Finance Minister Chrystia Freeland’s press secretary Adrienne Vaupshas said that the government has not forgotten its previous promises.

“The government is committed to lowering the cost of credit card payments in a way that benefits small businesses and protects existing rewards points for consumers,” Vaupshas said in an email.

Payments have been in the spotlight again recently, as new rules that came into force at the beginning of October allow companies to shift payments to customers using credit cards by adding additional fees to their invoices.

But many small and medium-sized business owners say the surcharges aren’t a real solution to the problem, as it could anger customers already struggling with inflation and potentially drive them to larger competitors. Small retailers, for example, say larger competitors are better able to absorb the cost of swipe fees without surcharges because they have the leverage to negotiate lower fees with card issuers.

“We have reached an inflection point in the industry,” said Anne Kothawala, president and CEO of the Convenience Industry Council of Canada, which represents convenience store owners. With the change in shopping habits that occurred during the pandemic, customers are opting for cashless payment much more often than before, leading to a 55 percent increase in swipe fees at stores, he added.

“The biggest costs of business are labor; the second biggest cost used to be real estate. Commissions have now overtaken real estate,” Kothawala said. “… The lack of rapid mobility of credit card payments threatens the long-term viability of many of these local businesses and the communities they serve.”

The Canadian Federation of Independent Grocers (CFIG) launched a coordinated letter-writing campaign in August where members can ask their MPs to make progress on the issue.

“We want the minister to stick to his commitment that prices for small and medium-sized businesses should be the same as large businesses,” said Gary Sands, CFIG’s vice-president of government relations.

Federal lobbying records show the big three credit card companies (Visa, Mastercard and Amex), banks (including Royal Bank of Canada) and financial services firms including Moneris have signed up to talk to the government about its plans to downgrade credit. card exchange fees.

Several companies and groups from a variety of industries have also registered on the issue, including Walmart Canada Inc., the Canadian Energy Marketers Association (which represents fuel retailers such as gas stations), and the Canadian Chiropractic Association.

Alison Dantas, CEO of the Canadian Chiropractic Association, said many health care clinics operate as small businesses and have incurred higher costs during the pandemic.

He said his members are not in favor of passing on transaction fees to patients through surcharges, but would prefer the government to reduce fees altogether.

Restaurants Canada was among several groups in Ottawa last week to advocate for the cause, according to James Rilett, the group’s vice-president for central Canada.

“Even at our best, our profit margins are around 4 percent; in the post-pandemic period, it will average between 1.5 and 2 percent,” he said. “We basically give the credit card companies more money than we make ourselves.”

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