What about those fees?

It was two decades ago that Canadian grocers began noticing that credit card fees were nibbling at their bottom line results. As Canadians began to use credit cards with greater frequency, companies like Visa and MasterCard began to offer premium cards with more and more bells and whistles (wooing users with the opportunity to earn airplane tickets, money back and even VIP experiences). To pay for these added perks, credit card companies increased the fees to retailers. Indeed, the fee charged to grocers each time they swiped a customer’s credit card quickly reached anywhere from 2% to 4% of the value of the transaction.

As grocery sales became more and more dependent on credit and debit cards (as they became a preferred method of payment with many consumers), the impact on grocers’ bottom lines became more acute. With profit margins for grocers famously slim, often as low as 1%, a 2% fee or more per transaction was clearly intolerable and unsustainable.

In 2014, a group called the Small Business Matters Coalition formed—comprised of about 25 trade associations, including the Canadian Federation of Independent Grocers (CFIG)—and it soon took up the challenge to lobby the credit card companies and the federal government to lower the rate being paid by retailers, noting that the 2% or even 3% rate in Canada was much greater than, say, Australia where it was only 0.5%. Why such a difference?

Visa and MasterCard eventually told Ottawa they would agree to lower the fees to an average of 1.5%. Those rates went into effect in 2015, and the agreement expires in 2020. In August 2018, the government announced it had reached a new agreement with Visa and MasterCard to make a reduction in the average fees down from 1.5% to 1.4%, which would begin May 2020. A win, yes, albeit not as big a drop as it could be.

In response to this announcement, the Retail Council of Canada (RCC) stated in a release that this reduction still “falls well short of where it should be,” and noted that the RCC would continue “its assertive advocacy efforts to push for more meaningful reductions in credit card interchange.”

Gary Sands, senior vice-president public policy and advocacy for CFIG notes: “it’s not what the card companies say the rate is, it’s what the rate is that matters,” noting that the percentage the card companies cite is an average rate for all their cards, including the premium ones.

In the meantime, Interac debit fees are just a few pennies per transaction—a flat fee rather than a percentage of the purchase, so no matter how big or small the customer’s purchase is, the fee is always the same. No wonder grocers would prefer their customers use Interac debit.

Sands says the Small Business Matters Coalition targeted Liberals and the NDP in the run up to the recent federal election, and Visa and MasterCard responded by saying they would reduce the fees for the independent grocery channel to 1.33% for Visa and 1.36% for MasterCard. Large grocers with more clout such as Loblaw and Walmart get an even better rate “which is 0.89% for Walmart,” according to Sands. He is hoping for a further reduction to around 1.22%, although even that “is less than what is possible,” Sands believes.

The Competition Bureau, a few years back, estimated revenue from credit card fees in Canada to be about $5 billion annually. Certainly, a good portion of that was taken from grocers. Canada is the second-most card friendly country in the world after Sweden, according to ZUU Online. A report from the Canadian Bankers Association revealed that nearly 74.5 million MasterCard and Visa credit cards are collectively held by Canadians.

We await whether further reductions will happen, but as Sands says: “it’s like a boxing match with many rounds. We’ve won a few battles but this is a war.”

This article appeared in Canadian Grocer’s December 2019/January 2020 issue.