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Addressing swipe fees a 'better' solution to high food prices: OPINION

While the federal government's “grocery rebate” will provide some temporary relief to inflation-weary Canadians, a better opportunity to help offset high food prices seems to be eluding Ottawa
Gary Sands
Gary Sands

With much fanfare and dozens of photo-ops, the Government of Canada continues to promote the announcement in last months’ budget that lower income Canadians will receive a “one time” boost in their GST rebates, albeit packaged and sold as a “grocery rebate.” 

This temporary measure is aimed at providing some help to an estimated 11 million Canadians dealing with rising food prices. But a better opportunity to help offset those increases on a permanent basis for all Canadians seems to be eluding the federal government.  

That opportunity lies in ensuring meaningful reductions to indefensibly high interchange fees – more commonly known by the appropriate moniker of “swipe fees” – paid by Canada’s small- and medium-size enterprises (SMEs) for every transaction involving a consumer and their credit card.

[Read more: “Federal budget 2023 includes $59.5 billion in new spending, looks to increase revenue”]

Ottawa acknowledged in the 2021 budget that there has been a seismic shift away from cash to credit card transactions as a result of the pandemic. For the most part, this change in how consumers choose to pay is permanent. In that same budget, Finance Minister Chrystia Freeland pointed out that “small and medium-sized businesses… incur fees for these transactions also known as interchange fees, which are amongst the highest in the world.” The minister went on to say that she would “ensure that these businesses benefit from pricing that is similar to large businesses.” 

While the government indicated in the 2023 budget that there would, finally, be reductions in interchange fees – generating an almost Pavlovian response of support from some corners of the business community – small- and medium-size businesses would be well advised to hold their applause.  

At the outset, the minister appears to be backing away from her commitment to medium-size businesses, now saying that relief would be provided only to small businesses. The government has also not spelled out which small businesses would qualify for a reduction and to what degree.

Even more disconcerting is that behind the scenes, Ottawa seems to be favouring the concept of using sales volumes as a means by which to determine which small businesses would qualify for reductions in swipe fees.  

In the grocery sector, which is based on high sales volume and low margins, such an approach would ensure virtually no small- or medium-size independent grocer in Canada would qualify for any reduction.  

[Read more: “CFIB urges feds, credit card companies to move quickly on processing fees”]

Using sales thresholds as the doctrine to determine eligibility for fee cuts would arbitrarily punish small- and mid-size businesses who happen to be grocers.  

A clear promise made in 2021 to reduce fees for SMEs cannot morph two years later into a tenet that now picks winners and losers.

There are approximately 6,900 independent grocers in Canada. Many are located in rural and remote communities where they are the only grocery store and source of food for consumers to purchase, particularly important during winter months when accessibility to other communities may be difficult.  

These family-owned independent grocers buy local, hire local and have a symbiotic relationship with the community that they themselves live in. Independent grocery stores are part of the fabric of myriad communities that make up the diverse tapestry of Canada. But food affordability and food security in these communities is very much predicated on the ability of those Main Street grocers to stay in business.  Without them, that tapestry begins to unravel. An independent grocer operates with margins of around 2%, half that of retail grocery chains. Juxtapose a margin of 2% against interchange fees of 1.23% and higher on all your transactions and that slim margin becomes a tenuous business model.     

In the context of public angst over rising food prices, for the government to contemplate a criteria that would exclude SMEs, family-owned independent grocers from passing on the savings of reduced fees, is decidedly perplexing.  

The government is allocating $2.5 billion tax dollars for the temporary grocery rebate. But an equivalent reduction in fees, with no tax dollars being needed, would provide relief on a permanent basis. That could be achieved by enhancing a much needed SME reduction with a corollary of lower swipe fees for purchases of food that are made with a credit card.

[Read more: “Small businesses welcome Ottawa's promised action on credit card fees”]

It is worth noting that myriad factors are influencing food prices at this time. The war in the Ukraine continues to severely affect the global supply chain; flooding and other climate change issues have caused catastrophic damage to supply chain infrastructure; a virus has devastated the Salinas valley in California, impacting the nearly $5 billion that Canada imports from that state; skyrocketing fuel costs; avian flu outbreaks that drive up the price of poultry and eggs; continuing labour shortages and the list goes on. All issues largely out of anyone’s control, but reasonable swipe fees for the purchase of groceries is within our control.

It would not be difficult for banks and credit card companies to establish such a criteria for credit card food purchases. They already have a plethora of cards with a confusing array of different rates, programs, schedules and sectors for on-line transactions or in-person sales.  

All too often governments past and present have buckled in the face of the payments industry’s well-funded vociferous clamoring that any reduction in swipe fees would have some amorphous effect on reward points for consumers. The fundamental frailty of that argument is denoted by the fact that the lower swipe fees enjoyed by big business in Canada have absolutely no impact on the reward points for their customers, who use the same credit cards, to conduct the same transactions as they would at a small- and medium-size business. It should also go without saying that reward points should not supplant the importance of trying to offset the impact of rising food prices, particularly in many of Canada’s rural, northern and remote communities.  

Providing consequential reductions in swipe fees – at no taxpayer expense – to Canada’s independent grocers, with their brick-and- mortar stores rooted in their communities, will do more to help offset rising food prices for consumers.

Independent grocers compete on an uneven playing field in Canada. Not much can change that. But the weight of an unfair and opaque payments system encumbers their ability to just stay on that field.  

It’s time for all businesses to pay similar interchange fees. It’s also past time for Ottawa to demonstrate, through action, an understanding of the vital role independent grocers provide in maintaining food security, supporting our supply chain and being there for Canadians across our country.

Gary Sands is the senior vice president of the Canadian Federation of Independent Grocers

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