Canadian merchants have long been plagued by excessive credit card processing fees. In fact, they pay roughly five times what the rest of the world pays. However, new developments indicate that change is coming, and these shifts should make it more affordable to accept credit cards.
Credit Card Rates for Small Businesses
On average, small businesses pay 1.5% to process Visa and Mastercard transactions, and some merchants pay more than 2.5%. These fees add up over time, and if you take $1,000 in credit card transactions daily, you stand to lose $450 to $750 in fees every month. Traditionally, American Express rates are even higher, hovering between 3% and 3.5%. Around the world, fees are much lower. Great Britain, for instance, doesn’t allow rates higher than 0.3%, Australia 0.5%, and France just 0.28%.
Lower Rates for Mastercard
In 2017, the Canadian Federation of Independent Business negotiated lower rates with Mastercard. Due to this agreement, the average fee fell from 1.44% to just 1.26%. However, that reduction of 12% is only available to CFIB’s 110,000 members.
Lower AmEX Rates
As of March 2018, CFIB and Chase Merchant Services also worked out a deal to lower rates for American Express transactions to just 1.8%. That’s a 50% reduction for many merchants. To access the lower rates, you must be a member of the CFIB and process $500,000 or less in American Express payments per year.
Rates for Big and Small Companies
Industry groups such as the CFIB have been successful at occasionally working out favourable deals, but the fact remains that large businesses have more clout than small businesses. Because of that, retail giants are often able to secure lower rates. Take the case of Walmart Canada. After the company stopped taking Visa in some of its stores, Visa agreed to lower its fees to less than 1%. Similar arrangements have been made for Costco, but according to Gary Sands, chair of the Small Business Matters Coalition, the credit card companies make up these shortfalls by increasing the rates for small businesses.
A Brief History of Transactions Fees
This debate is nothing new. The CFIB has been fighting for lower rates and better terms since 2008. In 2010, the organization finalized the Code of Conduct for the Credit and Debit Card Industry, and MasterCard and Visa both agreed to follow the terms.
In 2012, the Competition Bureau of Canada took Visa and Mastercard to court. The group argued that these behemoths controlled 92% of the industry but weren’t acting as competitors. Instead, they were colluding to keep rates high. The case was thrown out on a technicality. The banks and many others cheered, but the Retail Council of Canada expressed disappointment that consumers were going to have to continue paying about $6 billion in credit card fees annually. If Canada’s rates were in tune with the EU, that amount would fall to between $1 and $2 billion.
In 2014, instead of fighting the credit card processors directly, the CFIB decided to take a different approach. The group began encouraging shoppers to pay with debit cards. It must have worked, because in late 2014, both Visa and Mastercard agreed to lower fees and freeze them for five years. They also agreed to let merchants back out of their payment processing contracts if the rates were too high or if the processor’s failed to pass on savings from Mastercard or Visa.
To keep your costs low, you should be aware of cards that carry higher fees. Mastercard, for example, has premium cards which incur much higher processing fees than standard cards. Luckily, you are allowed to pick and choose which cards you accept. Additionally, you may want to offer discounts to customers who use cash or debit. Beyond that, consider joining industry groups or getting involved with the "fight" to lower rates.