Business groups are calling for action on credit card swipe fees, saying the federal government has dragged its feet on promises to lower them.
The Liberals promised in the 2021 and 2022 federal budgets to work with the financial industry to reduce transaction costs for merchants and align the fees that small businesses pay more with those of large corporations, which have more bargaining power with card issuers. The issue is politically sensitive for the government, as the fees are used by banks to fund loyalty schemes. So the Liberals also promised to protect Canadians’ rewards points in the process.
But ahead of the federal government’s release of its fall economic statement on Thursday, some business associations say action on that front is long overdue and businesses are unable to absorb the costs as the use of credit cards increases.
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“There has been virtually no progress,” said Dan Kelly, president of the Canadian Federation of Independent Business, which has lobbied the government to prioritize the issue of credit card fees. credit in this week’s mini-budget. “I hope it gets presented, and I really hope it’s not just another vague commitment to do something. … I have a lot of companies saying they’re spending more on processing fees than credit card that they withdraw themselves from the business, as the owner.
In 2020, fees in Canada were reduced to an average of 1.4% of each transaction, down from 1.5%, after a five-year voluntary agreement the government reached with credit card companies. But that’s an average. The fees merchants pay on credit card purchases vary widely, depending on factors such as the type of business making the sale and the card used by the customer. Rates can be higher than 2%.
Adrienne Vaupshas, press secretary to Finance Minister Chrystia Freeland, said the government had not forgotten its past promises.
“The government is committed to reducing the cost of credit card fees in a way that benefits small businesses and protects existing rewards points for consumers,” Ms Vaupshas said in an email.
Fees have been in the spotlight again recently after new rules came into effect in early October, allowing businesses to pass these fees on to customers who use credit cards by adding surcharges to their bills.
But many small and medium-sized business owners say overcharging isn’t a real solution to the problem, as it has the potential to anger customers who are already struggling with inflation and potentially lead them to larger competitors. Smaller retailers, for example, argue that larger rivals are better able to absorb the cost of swipe fees without a surcharge because they have the power to negotiate lower fees with card issuers.
“As an industry, we’ve reached a tipping point,” said Anne Kothawala, president and CEO of the Convenience Industry Council of Canada, which represents convenience store owners. With shopping habits changing during the pandemic, customers are choosing cashless payments much more frequently than before, leading to a 55% increase in swipe fees for store owners, it said. she adds.
“The biggest cost of doing business is labor; the second highest cost was real estate. Interchange fees have now overtaken real estate,” Ms. Kothawala said. “…The lack of swift movement on credit card fees threatens the long-term viability of many of these local businesses and the communities they serve.”
The Canadian Federation of Independent Grocers (CFIG) launched a coordinated letter-writing campaign in August asking members to ask their MPs to make more progress on the issue.
“We want the Minister to maintain his commitment that rates for small and medium-sized businesses should be similar to those paid by large businesses,” said Gary Sands, vice president of government relations at CFIG.
Federal lobbying records show that the three major credit card companies (Visa, Mastercard and Amex), banks (including Royal Bank of Canada) and financial services companies, including Moneris, have registered to speak to the government of its plans to reduce credit-card interchange fees.
A number of companies and groups from a wide range of industries have also signed on to this topic, including Walmart Canada Inc., the Canadian Association of Energy Distributors (which represents fuel retailers such as gas stations) and the Canadian Chiropractic Association.
Alison Dantas, chief executive of the Canadian Chiropractic Association, said many healthcare clinics are operated like small businesses and have faced higher expenses during the pandemic.
She said her members are not in favor of passing transaction fees on to patients through surcharges and would prefer the government to act to reduce fees altogether.
According to James Rilett, group vice-president for central Canada, Restaurants Canada was part of a number of groups in Ottawa last week.
“Even in the best-case scenario, our profit margins are around 4%; after the pandemic, it’s on average around 1.5 to 2%,” he said. “We’re basically giving the credit card companies more money than we’re making ourselves.”
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