Industry groups the Retail Council of Canada and the Canadian Federation of Independent Grocers are applauding the federal government’s intention to pressure leading credit card companies to lower their transaction fees.
In this week’s federal budget, the Liberal government said it would work with key stakeholders to have companies such as Visa and Mastercard lower the cost of transaction fees—known as interchange fees—for merchants. Interchange fees are paid by merchants every time a customer pays for a purchase with a credit card, a number that amounts to as much a $5 billion a year across the entire retail sector.
It is the third time since 2015 the federal government has pressured credit card companies to lower interchange fees. In 2018, it announced a voluntary five-year agreement with Visa and Mastercard that saw interchange fees lowered to an average of 1.4%. Fees were reduced to an average of 1.5% in 2015, from previous levels of 1.62% for Visa and 1.74% for Mastercard.
Interchange fees have been a thorny issue for retailers for years, and their cost to grocers has only been further exacerbated by the pandemic. CFIG senior vice-president Gary Sands said the past 14 months had produced a “huge migration” away from cash payments to credit and debit cards, which now accounted for more than 90% of all transactions among CFIG members (up from the mid- to high-60s pre-pandemic).
This has led to an exponential increase in interchange fees and an erosion of the bottom line for CFIG members, said Sands. And while payment methods could balance out post-pandemic, he said it was unlikely they would ever completely return to what they were pre-COVID.
The federal government also said it would work to ensure that small businesses benefit from pricing similar to that provided to larger companies, and indicated it would consider legislative amendments to the Payment Card Network Act to regulate fees “if necessary.”
Sands said CFIG was “really happy” with the government statement, noting that continued lobbying efforts by various groups was “absolutely” instrumental in its decision. “The fact we now have these commitments put into a budget document [is] a significant win for retail, and that doesn’t come out of thin air,” he said. “That’s a result of them hearing concerns they feel are credible.”
Sands also noted that the government language used in reference to legislative amendments is encouraging. “Basically, they’re saying if we can’t get an agreement here, we’re opening the door to legislative and regulatory action,” he said. “That’s a big incentive for the banks and Visa and Mastercard to be sitting down at the table.”
Sands said the current 1.4% average was “very misleading,” since there are significant variances between what independents and larger retailers pay in interchange fees. In an op-ed written for the Toronto Star earlier this year, he said the industry average of 1.4% was “indefensibly and inexplicably higher” than what larger retailers pay.
“The gap between what small independent sizes pay and what the bigger multinationals are paying is too far apart, and we have never received an explanation for why the gap needs to be that wide,” said Sands. “The aggregate buying power of independents in Canada is right up there with the chains, so why don’t we have a special rate that’s in the same range?” Bringing interchange fees for SMEs down to the rates paid by larger retailers, he said, could equal potentially billions of dollars in savings.
Interchange fees can vary by payment type, with different rates for online versus in-store purchases. The 2018 reduction only applied to in-store payments, which have given way to a greater number of online purchases during the pandemic. “All of that [has] exponentially increased the cost for grocers of accepting those types of payment,” said RCC president and CEO Diane Brisebois, who predicted that payments of this nature would continue to grow “in a very healthy way” even post-pandemic.
“[W]e are pleased to see the inclusion of a commitment to address excessive credit card interchange fees, on which RCC has taken a firm position on the need for regulatory measures,” said the RCC in its official statement on the budget. “A reduction in credit card fees is especially important to retailers in consequence of the COVID pandemic, having faced a dramatic increase in costs given the rise in online shopping and the declining use of cash.”
Brisebois said the upshot for grocers as a result of changing consumer habits is that they are paying “substantially more” in fees than they were pre-pandemic. And while it’s an important issue for grocers of all sizes, it has a “huge impact” on smaller independents.
Brisbois said the RCC had heard from grocers of all sizes in the past 12 months, who are in “a state of shock” when looking at the substantial increase in costs associated with accepting credit card payments.