What's next for credit card fees?
Ask grocers to name the biggest thorn in their side, and many will answer with, credit card interchange fees.
These fees, upwards of 2% to 4% of the value of the transaction depending on the type of card, cost grocers money every time a customer pays by credit card. Given that supermarket margins can be as little as 1%, these fees can rob the store of the entire profit on a sale.
A year ago, some relief was promised. With prodding from the former Conservative government in Ottawa, the major credit card companies, Visa and Mastercard, agreed to a five-year freeze on fee hikes and pledged to lower interchange fees charged to an average of 1.5%.
The 1.5% pledge took effect last April. With the one-year anniversary looming, have fees fallen? And if so, how much? Just as important, perhaps, will the new Liberal government force fees down further?
Gary Sands, vice-president of public policy at the Canadian Federation of Independent Grocers, said his members have seen average fees decline in the last year, but not to the 1.5% target.
Interchange fees have fallen to 1.68% on average from more than 2% for CFIG members, Sands said. Given that grocery profits per transaction are counted in pennies, it’s not enough of a drop, he added.
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“Our tracking shows our members will not be hitting the 1.5% overall reduction this April,” he told Canadian Grocer, adding that the Conservative government had promised that small and medium size businesses would see even “greater reductions” than 1.5%.
Sands brought up the issue of credit card fees last week during a meeting between federal minister of small business and tourism, Bardish Chagger, and the Small Business Matters Coalition. Sands is chair of that group, which comprises more than 20 trade associations representing some 98,000 small business members, including independent grocers.
Among the concerns raised by the coalition during that meeting: the 1.5% credit card interchange fee target should be lowered further and Canada is falling behind other countries in cutting interchange fees.
Fees in the Australia are 0.5% of the transaction price. And the European Union recently lowered its fees to 0.3% from 0.5%.
If Canadian fees were as low as in Europe, retailers here would see substantial savings. For instance, 25,000 convenience stores in Canada would save $750 million, according to the Canadian Convenience Stores Association, which says its members pay on average $36,000 a year in credit card fees per store.
“We’d like the government to explain why
Three years ago the Competition Bureau declared Canada’s credit card interchange fees “among the highest in the world” and estimated they cost Canadian businesses at least $5 billion annually.
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That spurred the Stephen Harper government to pledge a cut, and in November 2014 the government, Visa and Mastercard agreed to a five-year rate freeze and a target of 1.5% fees as of April 2015.
Since then rates have come down on average about 10% to 15%, said Dan Kelly, president of the Canadian Federation of Independent Business (CFIB). By comparison, interchange fees rose 30% to 40% between 2007 and 2015.
Just as important, perhaps, is the five-year freeze on credit card rates has introduced “price stability” to businesses in regard to what they pay in fees.
A spokesperson for MasterCard said that the credit card company is committed to lowering interchange fees.
"We reduced our rates to honour our voluntary agreement and meet the average net effective interchange rate of 1.5%," Serda Evren, vice-president of North American communications for MasterCard, said.
CFIB's Kelly told Canadian Grocer that the numbers he’s seen from credit card companies backs up the claim that, overall, interchange fees are now down to 1.5% on average.
However, in the world of interchange fees, the math isn't always so easy. For one, interchange fee declines in the last year have been “modest” Kelly noted and so “merchants may not have seen much of a drop in their costs.”
Also, in addition to interchange fees, retailers pay other fees every time a customer pays with a credit card. For instance, processor fees go to companies such as Chase and Moneris. These fees are dimes compared to interchange fees' dollars, but any increase in them will hit a retailer's pocketbook.
Finally, the 1.5% fee target was an average that the credit card companies were expected to meet. Some cards, notably premium cards, still come with higher rates.
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What’s also unclear is whether fee deals negotiated by big retailers are being used to lower the average fee reported by the credit card companies. If that’s the case, then small businesses, including independent grocers, who pay higher fees are effectively subsidizing the lower fees negotiated by big-chain rivals.
"Small business owners are going to pay the most," said Alex Scholten, president of the Canadian Convenience Stores Association. "They're in the least position to negotiate rates."
Scholten said CCSA members have seen fees come down in the last year but that the reductions aren't "across the board."
A spokesperson for the Department of Finance, David Barnabe, said that initial indications are that credit-card fees have come down but that the government "continues to monitor the situation."
Barnabe added that Visa and MasterCard must each submit a report this spring to the government proving they are meeting the targets and that reductions are being "fully passed through to merchants."
There’s no word yet whether the Justin Trudeau government plans to take any action to further lower fees. But one MP isn’t waiting for the government to make a move.
In February, Linda Lapointe, a Liberal representing the Quebec riding of Rivière-des-Milles-Îles, introduced a private member’s bill that would give Ottawa the power to limit credit card fees.
Lapointe, who formerly managed a Provigo and grew up working in her father’s grocery store in Boisbriand, Que., said the aim of the bill was to reduce costs to retailers. “It is important to note that small businesses need some wiggle room,” she added.
Though private member's bills rarely become law, the introduction of the bill could spur parliamentary hearings into credit card fees, which would allow businesses to make their case as to why fees should come down further, Sands noted.