The Canadian government wants credit card companies and banks to voluntarily agree to lower transaction fees paid by retailers, and to do so within months, Finance Minister Joe Oliver said on Thursday.
“We’ve said in last year’s budget that the government will work with stake holders to promote fair and transparent practices and to help lower credit card acceptance fees for merchants and also to encourage merchants to reduce prices for consumers,” Oliver told a news conference.
“We would like to see this proceed on a voluntary basis at this point ... We’re looking at months, not years, obviously,” he said.
Oliver also said he was encouraged by renewed economic growth in the United States but said this needed to be sustained before Canadian businesses would commit to major capital expenditures, something critical for economic growth.
Asked whether he had met the credit card companies or banks to discuss lowering fees, Oliver replied: “We have had meetings, yes.” Pressed as to the timing, he said: “The last little while.”
The so-called interchange fee is set by the payment networks and is passed along to card issuers, which include banks.
The Canadian government promised in its budget released earlier this year to take steps to promote lower credit card acceptance costs for merchants.
The government said merchants pay fees ranging from approximately 1.5 per cent to 4 per cent of the value of credit card payment transactions, costs which are passed on to consumers in the form of higher retail prices. Canada has among the highest credit card acceptance costs in the world, according to the government.
Last year, Canada’s Competition Tribunal dismissed a complaint from the Competition Bureau about the rules imposed on merchants by the Canadian arms of MasterCard and Visa.
Major U.S. retailers such as Target and Amazon have accused Visa and MasterCard of fixing fees charged to merchants when their customers use credit or debit cards.
In July, a U.S. federal judge declined to dismiss antitrust lawsuits filed against Visa and MasterCard by retailers who opted out of a class action settlement in 2012 over transaction fees.
The federal government wants MasterCard and Visa to voluntarily curb fees by about 10 per cent, said one person familiar with the talks, speaking on condition they not be identified. The fees are set by the payment networks though the bulk of the revenue is passed on to Canadian banks.
The cuts would lead to lower costs for retailers and threatens to erode revenue for credit-card firms and lenders including Bank of Montreal and Royal Bank of Canada. Banks say any efforts to cut transaction fees may force them to reduce card-holder benefits or eliminate cards.
“The tools that you have are to reduce benefits to consumers, to remove cards from the marketplace because they’re no longer profitable,” Royal Bank chief executive officer David McKay said yesterday at a banking conference. “Every bank is going to have a lot of unhappy customers.”
The issue has been raised during earnings calls by Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Alimentation Couche-Tard Inc.
“I think the retailers in general are challenged with the size or the level of the interchange fees and we’d like to see that basically changing,” Raymond Pare, chief financial officer at Laval, Que.-based convenience store operator Alimentation Couche-Tard, said on a call yesterday.
A voluntary pact would cover the bulk of credit-card payments in Canada. The purchase volume of 22 card issuers reached $334-billion last year, according to the Nilson Report, a payments industry network.
Canada’s card issuers, which include banks and credit unions, receive what’s called an “interchange fee” that’s passed along by the card companies. While the card networks set the fees, they don’t profit directly from interchange. The lenders use the revenue from those fees to pay for loyalty programs and cover credit-card losses.‘ With interchange fees ranging from 1 per cent to 2.65 per cent, according to Visa and MasterCard disclosures, annual revenue from these fees for financial institutions surpasses C$5-billion, based on the Nilson Report purchase volume data.
“For the banks it is a great business that will get marginally less great,” National Bank Financial analyst Peter Routledge said in a Sept. 2 interview.
With files from Bloomberg News