The Government of Canada today announced it is delivering on the Budget 2023 commitment to lower credit card transaction fees for small businesses by finalizing new agreements with Visa and Mastercard, while also protecting reward points for Canadian consumers offered by Canada’s large banks.
Small businesses pay fees to process credit card transactions, with the largest component being the interchange fee paid to credit card-issuing financial institutions, such as banks. These new agreements will help more than 90 per cent of credit card-accepting businesses in Canada qualify for lower rates and see their interchange fees reduced by up to 27 per cent from the existing weighted average rate. These reductions are expected to save eligible Canadian small businesses about $1 billion over five years.
For qualifying small businesses, Visa and Mastercard have agreed to:
- reduce domestic consumer credit interchange fees for in-store transactions to an annual weighted average interchange rate of 0.95 per cent;
- reduce domestic consumer credit interchange fees for online transactions by 10 basis points, resulting in reductions of up to 7 per cent; and,
- provide free access to online fraud and cyber security resources to help small businesses grow their online sales while preventing fraud and chargebacks.
Small businesses will qualify with each credit card network individually. Specifically, small businesses with annual Visa sales volume below $300,000 will qualify for the lower interchange fees from Visa, and those with annual Mastercard sales volume below $175,000 will qualify for the lower fees from Mastercard. Non-profit organizations with transaction volumes below these thresholds will also benefit from reduced rates.
As specified in Budget 2023, the government’s expectation is that commitments by credit card networks to lower interchange fees for small businesses will not adversely impact interchange fees paid by other businesses. The government also expects other credit card companies to take similar actions to lower fees for small businesses, and that payment processors will pass these reductions on to small businesses.
As part of these new agreements with Visa and Mastercard, Canada’s large banks have agreed to protect Canadians’ reward points.
The new rates will come into effect in the fall of 2024 to allow time to complete the required system updates.
Quotes
“Small businesses are the bedrock of Canada’s economy and play an important role in ensuring the vitality of communities and local economies across the country. The new agreements secured with Visa and Mastercard will make credit card transactions fairer for small businesses, which have less bargaining power than larger merchants to negotiate lower rates. With lower interchange fees, small businesses will save money that they can use to grow their businesses and create more good jobs.”
“More than 90 per cent of businesses that accept credit cards will soon see significant reductions in their fees. Our government knows that supporting small businesses means supporting a strong economy and vibrant communities. Today’s announcement means more money back in their pockets, allowing them to grow and remain at the heart of Canadian neighbourhoods from coast to coast to coast.”
Quick Facts
These new agreements will deliver significant savings for small businesses:
- Malik and Sebastian own a small local sport store in Edmonton with $300,000 in annual credit card sales ($200,000 in Visa sales and $100,000 in Mastercard sales). Each year, they currently pay $4,000 in interchange fees on these credit card transactions. Because of new agreements secured by the federal government, they are expected to see interchange savings of 27 per cent or $1,080 per year. Malik and Sebastian can use that $1,080 to advertise and grow their business.
- Farees and Hadeel own an independent bookstore in Brampton with $120,000 in annual credit card sales ($70,000 in Visa sales and $50,000 in Mastercard sales). They currently pay $1,600 in interchange fees on these sales every year. Because of these new agreements secured by the federal government, they are expected to save 27 per cent or $432 per year, which they can use to open a new online marketplace and grow their business.