Visa and Mastercard have agreed to cut Canadian credit card transaction fees, which could save smaller businesses (SMBs) C$250 million ($192 million) a year. The companies agreed to reduce the average annual interchange rate in Canada by 10 basis points to 1.4 percent on cards, according to Canada’s finance department.
“The voluntary commitments announced today are good news for Canadian businesses that accept credit cards, and good news for Canadian consumers,” said Finance Minister Bill Morneau in a press release. “With lower interchange fees, businesses will be able to save money that they can use to invest, grow and create more jobs.”
The new rate goes into effect in 2020 and runs for five years. The finance department explained that the commitments will make credit card acceptance fairer for SMBs, which have less power than larger merchants to negotiate lower rates. In fact, the government estimated that SMBs could save C$25,000 over the period. For smaller businesses with credit sales of $1 million per year, a 15-basis-point reduction in interchange fees could allow for savings of up to $7,500 over five years.
“Canada’s business community — especially our small businesses — [has] been waiting for relief from high interchange fees for a long time," said Linda Lapointe, member of Parliament for Rivière-des-Mille-Îles. "The commitments made today by the three payment card networks will help to deliver the lower rates for businesses of all sizes across Canada.”
In a separate agreement, American Express will support the Canadian government’s objectives of greater fairness and transparency in the nation's credit card market. This commitment recognizes the fact that American Express operates a unique business model with fees other than interchange fees.
“When small and medium-sized businesses accept credit card payments, they must pay a fee. From taxi drivers to startups, these fees can be a financial burden," said Mary Ng, minister of Small Business and Export Promotion. "Today’s announcement will reduce the fees these businesses have to pay and will lower the cost of doing business in Canada. In addition to lowering the small business tax rate to the lowest in the G7, this is yet another measure we are taking to make it easier for small businesses to compete, invest in their success and create jobs from coast to coast, to coast.”