Canadian small businesses can look forward to significant savings as the Government of Canada finalizes landmark deals with Visa and Mastercard. These agreements, part of the commitments made in the 2023 Budget, are designed to lower credit card transaction fees, specifically the interchange fee, which forms the most significant part of processing costs. The changes are expected to save the eligible businesses close to $1 billion over the next five years, a much-needed financial relief in a recovering economy.
These measures will also serve to protect the valuable reward points offered to Canadian consumers by the country’s major banks. This ensures that while businesses enjoy financial benefits, consumers won’t lose out on their rewards.
The reductions in fees will benefit over 90% of credit card-accepting businesses in Canada, as interchange fees could see cuts of up to 27% from the current average rate.
The two global credit card giants have agreed to specific provisions. In-store transactions’ interchange fees will be reduced to an annual weighted average rate of 0.95%, and online transactions will see a 10 basis point cut. In effect, this translates into a 7% reduction for online transactions. Additionally, Visa and Mastercard have pledged to offer free access to online fraud and cybersecurity resources. This is crucial to help small businesses scale their online sales while guarding against fraud and chargebacks.
The eligibility for lower interchange fees will be determined on a per-network basis. Small businesses with annual Visa sales volume below $300,000, and those with annual Mastercard sales volume below $175,000 will qualify for these reductions. Non-profit organizations and other entities with transaction volumes beneath these limits also stand to gain from these revamped rates.
Along with these measures, the government has made its expectations clear. It believes that the commitments to lower fees should not adversely affect the interchange fees paid by other business sizes. They also anticipate that other credit card companies will follow suit, slashing their fees to benefit small businesses.
In a remarkable step to protect consumers, the government has brokered agreements with Canada’s large banks to ensure that Canadians’ reward points remain untouched.
The reduced rates will take effect in the fall of 2024. This is to allow ample time for necessary system updates and changes to be implemented.
The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, emphasised the importance of this initiative, stating that small businesses form the bedrock of Canada’s economy. She further added that these agreements with Visa and Mastercard will make credit card transactions fairer for small businesses, and provide them an opportunity to expand their businesses and generate more jobs.
Echoing similar sentiments, the Honourable Mary Ng, Minister of International Trade, Export Promotion, Small Business and Economic Development, highlighted that the announcement signifies more money in the pockets of business owners, enabling them to grow and remain the lifeblood of Canadian communities.
This landmark decision will create ripple effects, touching many small businesses, such as a sport store in Edmonton owned by Malik and Sebastian, and an independent bookstore in Brampton owned by Farees and Hadeel. These business owners are set to save substantially on their interchange fees, enabling them to reinvest in their business, diversify their offerings, and stimulate growth.”
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