Laurie Jennings, owner of Masstown Market in the small rural community of Masstown, N.S., a 20-minute drive from Truro (population: 21,000), was relieved when he heard that the federal government had finally negotiated an agreement with Visa and Mastercard to lower interchange fees for small businesses.
His relief was short-lived. The lower fee (beginning in fall 2024) only applies to businesses with an annual Visa sales volume of below $300,000, or annual Mastercard sales volume of below $175,000.
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“The deal excludes me,” says Jennings, whose family-run farmer’s market opened in 1969. “While $300,000 sounds like a lot, that equals to only about $820 per day being charged to customers’ Visas. That is a very small amount.”
Masstown Market overshoots that by a notable margin, given the increase in customers paying by credit card. About 80% of all purchases are done electronically, versus 50% pre-pandemic and 25% five years ago, says Jennings.
Rather than the average 0.95% rate for those who meet the thresholds, Masstown Market has to pay 1.5% to Visa and Mastercard on purchases made to their cards. “The margin in grocery is about 3% to 4%, so we are seeing a significant portion of our bottom line going to the credit card companies,” says Jennings. “What’s left is barely enough to pay the bills.”
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Four industry associations – the Canadian Federation of Independent Grocers (CFIG), Association des détaillants en alimentation du Québec (ADA), Retail Council of Canada (RCC) and Convenience Industry Council of Canada (CICC) – have joined together in a public affairs campaign criticizing the deal.
Gary Sands, senior vice-president of CFIG, penned an an op-ed in The Globe and Mail calling the May 18 announcement from Finance Minister Chrystia Freeland and Minister of Small Business Mary Ng “a betrayal by both these ministers of the commitment the federal government made in its 2021 budget.”
Sands is also helping to lead an effort to lobby members of the House of Commons Finance Committee.
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A letter signed by the presidents of CFIG, ADA, RCC and CICC was submitted this week to Liberal committee chair Peter Fonseca, expressing their disappointment at the low thresholds, which leave medium-sized businesses out in the cold.
Given the government is unlikely to revisit its interchange fee decision anytime soon, the letter reminds the government to make good on its 2019 promise to take HST out of the base on which the interchange fee is calculated.
“That promise would do more, and apply equally to everyone, than any $300,000 sales threshold,” says Sands in an interview with Canadian Grocer.
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While the bulk of grocery products are not taxable, the sector is in categories that are charged HST, like pharmacy, pet food and household supplies.
Not every association, however, criticized the agreement the federal government made with the two biggest credit cards in Canada. The Canadian Federation of Independent Business (CFIB), for instance, called it “a big win for small business.”
Dan Kelly, president and CEO of CFIB, says the organization supported the agreement because of an initial analysis it conducted concluding almost three-quarters (73%) of its members will benefit from the rate reductions.
He acknowledges the grocery sector is not a big beneficiary of the deal, however.
Unlike, for instance, small accounting firms or fitness studios, “businesses with higher sales volumes but lower margins like grocery are less likely to benefit, given the increasing number of customers choosing to pay by Visa or Mastercard.”
“And so, as an association, we have to accept a lower threshold than we'd like, and then lobby every year for increases so that it applies to a larger number of small businesses,” says Kelly.
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Grocers can try and pass interchange fees onto customers, but owners say that’s a tough proposition given competitors like Walmart, which have used their size as bargaining power to negotiate favourable fees and keep food costs down.
“My biggest competition is Costco and Walmart; they’re 30-minutes away by car in the next town and they pay lower credit fees than we do,” says Dominic Arsenault, who owns an IGA in Coaticook, Que.
And while the COVID-19 pandemic is over, Arsenault says most customers have not returned to debit or cash to make grocery purchases. “We paid a record in interchange fees last year, about $153,000, but we’re on pace to beat that by $3,000 this year,” he says.