OTTAWA – The Canadian units of Visa Inc. and MasterCard Inc. announced yesterday that they will lower the swipe fees paid by Canadian retailers, in a move to avoid the Canadian government forcing them to instill lower fees amid a debate over credit-card processing costs.
The government had been considering such a move, after years of lobbying by the country’s small-business owners and retailers, who said the high processing fees were a burden to business and led to higher costs for consumers.
Visa Canada and MasterCard Canada said they would reduce their interchange fees, or the rate set by payment networks to process a credit-card transaction, to an average of 1.5%. The new rate will be in effect for five years, beginning April 2015.
“These commitments represent a meaningful long-term reduction in costs for merchants that should ultimately result in lower prices for consumers,” Canadian Finance Minister Joe Oliver said in a statement Tuesday.
Canadian merchants have been pushing the government for a change in the swipe-fee regime amid a boom in so-called premium credit cards, which come with higher fees to fund lucrative rewards programs. The Canadian Federation of Independent Business says those fees add up to 7 billion Canadian dollars ($6.16 billion USD) annually to the cost of goods and services.
The pledges by Visa and MasterCard “do not represent a massive reduction in the swipe fees charged to merchants,” the federation said, but “will reduce some of the cost pressure and end the regular fee hikes that have been the norm.”
The credit-card companies said the agreement brings an end to the debate and allows them to move on to other issues.
Other countries have taken action against credit-card companies. Australian regulators slashed credit-card interchange fees nearly in half to 0.5% of a transaction in 2003. Meanwhile, the U.S. Federal Reserve in 2011 capped debit-card interchange at 21 cents per transaction, plus the potential of a few more cents to cover fraud costs. That was down from an average of 44 cents.