The Government of Canada has officially announced the successful negotiation of agreements with Visa and Mastercard aimed at reducing credit card transaction fees for small businesses. These agreements also include provisions to safeguard reward points offered to Canadian consumers by major banks in the country.
In the current credit card transaction system, small businesses incur fees, with the primary component being the interchange fee paid to the financial institutions issuing credit cards, such as banks. The recently finalised agreements are designed to benefit over 90% of businesses in Canada that accept credit cards, enabling them to qualify for lower rates and experience a reduction of up to 27% in interchange fees compared to the existing weighted average rate. It is anticipated that these reductions will result in savings of approximately $1 billion for eligible Canadian small businesses over the next five years.
Key provisions of the finalised agreements include:
1. Reduction in Interchange Fees: Visa and Mastercard have agreed to lower domestic consumer credit interchange fees for in-store transactions to an annual weighted average interchange rate of 0.95%. Additionally, fees for online transactions will be reduced by 10 basis points, translating to reductions of up to 7%.
2. Free Access to Cybersecurity Resources: Visa and Mastercard will provide qualifying small businesses with free access to online fraud and cybersecurity resources. This is intended to assist small businesses in expanding their online sales while concurrently preventing fraud and chargebacks.
3. Qualification Criteria: Small businesses with an annual Visa sales volume below $300,000 will qualify for the reduced interchange fees from Visa, while those with an annual Mastercard sales volume below $175,000 will qualify for the lower fees from Mastercard. Each small business will need to qualify with each credit card network individually. Non-profit organisations with transaction volumes below these thresholds will also benefit from the reduced rates.
4. Protection of Reward Points: As part of the agreements with Visa and Mastercard, Canada’s major banks have committed to safeguarding reward points for Canadian consumers.
The new rates resulting from these agreements are expected to be implemented in the fall of 2024, providing relief and cost savings for small businesses across Canada.