Small grocers left hanging as Ottawa's deal to lower credit card fees takes effect
Some small businesses in Canada will see lower Visa and Mastercard fees starting this week as part of a deal negotiated last May by the federal government.
But groups representing the food retail industry say small grocers have nothing to gain from the drop in swipe charges.
“This reduction in interchange fees itself is not a win for small businesses,” Gary Sands, senior vice-president of public policy and advocacy for the Canadian Federation of Independent Grocers (CFIG), tells Canadian Grocer.
Swipe fees are set to drop Saturday (Oct. 19) by an average of 27% for small businesses processing less than $300,000 in annual Visa sales and $175,000 in Mastercard transactions.
Small firms will qualify for a 0.95% average interchange rate for in-store sales and see a 0.1% cut in e-commerce fees.
“There is not a single grocer in Canada that will see any reduction using that criteria. Not a small business grocer, certainly not a medium size grocer,” Sands said. “The same can be said for businesses in other sectors.”
In a statement released earlier this month, the government said more than 90% of small- and medium-sized businesses that accept credit cards will receive lower rates, adding up to about $1 billion in savings over five years.
By comparison, the Canadian Federation of Independent Businesses (CFIB) estimates that over 60% of its 97,000 members will qualify for the savings.
But independent grocers say they've been left out of the equation.
“Any help is useful to those who qualify but the beneficiaries are definitely on the smaller end of small business with annual credit card sales of (typically) less than $500,000, so it would be a rare grocer who would see any benefit," Karl Littler, senior vice president of public affairs for the Retail Council of Canada (RCC), said. "Moreover, banks will reap more than $50 billion in interchange over the next five years. So the government’s claimed savings of $1 billion over the same five year period sounds like less than 2% of the overall amount of interchange that will be collected from businesses and ultimately, from Canadian consumers”
Small food retailers expressed disappointment last year following the news of Ottawa’s deal with Visa and Mastercard.
Sands penned an op-ed in The Globe and Mail calling the 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.”
CFIG and other associations including the RCC called on 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,” Sands told Canadian Grocer at the time, given that most grocery stores have higher sales and lower margins.
Dan Kelly, CFIB president, said the organization is pushing to raise the threshold annually.
“This is where increasing that threshold will be important, and not keeping it static,” Kelly said in a media briefing Friday. “Most grocery stores—even a medium sized grocery store—would be above that $300,000 or $175,000 threshold. That's where the work needs to happen to try to get that bumped up.”
But Sands isn't convinced the government will budge anytime soon.
"Let’s just say if you are a Toronto Maple Leafs fan and you have been waiting a long time for a Stanley Cup—it’s nothing compared to how long a Canadian grocer would have to wait before they saw any reductions in their interchange fees," he said.
Not all payment processors on board
Ottawa said it expects the credit card industry, including payment processors, to pass on savings directly to small businesses. But not all are on board.
Multinational payments processor Stripe has stated on its website that it won’t be changing its flagship blended rate due to increased fees and costs that exceed the interchange fee reduction.
Stripe provides services to businesses like SkipTheDishes, Instacart and Amazon through its partnerships with Shopify, Lightspeed and FreshBooks.
Kelly called the decision “extremely disappointing.”
“Stripe, a giant multinational, feels that the money that was supposed to go to the little independent business that has struggled through the pandemic should be used to cover increases in costs that Stripe itself has experienced over the last little while,” Kelly said.
Stripe’s statement follows revisions to the Code of Conduct for the Payment Card Industry in Canada requiring payment processors to publicly state why they’re not passing along those savings.
“They're supposed to give you information on how you can get out of that contract if you want to without penalty. It used to be only if the rates went up that you would have the ability to exit a contract without penalty,” Kelly said. “The expectation is that the industry will allow businesses to exit from those contracts if they don't think they're getting the reduction, or they can show that they're not getting the reduction.”
CFIB said it has written to all major credit card processors in Canada. Most of the major players have publicly committed to passing on the savings, while some have not confirmed their plans.
“We will be monitoring all credit card processors to ensure they keep their side of the bargain,” said Corinne Pohlmann, executive vice-president of advocacy at CFIB.
With files from Chris Daniels
