Business groups call for government action on credit-card swipe fees

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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 lower transaction costs for merchants and bring the fees that small business pay more in line with big businesses, which have more negotiating power with card issuers. The issue is politically sensitive for the government because the fees are used by banks to fund loyalty programs, so the Liberals have 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 this front is long overdue and businesses are unable to absorb the costs as credit-card use rises.

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“There’s been virtually no progress made,” said Dan Kelly, president of the Canadian Federation of Independent Business, which has been lobbying the government to prioritize the issue of credit-card fees in this week’s mini-budget. “I’m hoping this will be featured, and really hoping it’s not just another vague commitment to do something. … I’ve got a lot of businesses that say they spend more on credit-card processing fees than they take out of the business themselves, as the owner.”

In 2020, the fees in Canada were reduced to an average of 1.4 per cent of each transaction from 1.5 per cent, after a voluntary five-year deal the government struck with credit-card companies. But that is an average. The fees that merchants pay on credit-card purchases vary widely, depending on factors such as the type of business making the sale and which card a customer uses. The rates can be higher than 2 per cent.

Adrienne Vaupshas, press secretary for Finance Minister Chrystia Freeland, said the government has not forgotten about its past promises.

“The government is committed to lowering the cost of credit card fees in a way that benefits small businesses and protects existing reward points for consumers,” Ms. Vaupshas said in an e-mail.

The fees have been in the spotlight again recently after new rules came into effect in early October, allowing businesses to pass on those fees to customers who use credit cards by adding surcharges to their bills.

But many small- and medium-sized business owners say surcharging is not a real solution to the problem, because it has the potential to anger customers who are already struggling with inflation, and to potentially drive them to larger competitors. Small retailers, for example, say that big-name rivals are better able to absorb the cost of the swipe fees without a surcharge, because they have the clout to negotiate for lower fees with card issuers.

“As an industry, we’ve reached a tipping point,” said Anne Kothawala, president and chief executive of the Convenience Industry Council of Canada, which represents convenience store owners. With the change in shopping habits over the course of the pandemic, customers are choosing cashless payments much more frequently than they used to, leading to a 55-per-cent increase in swipe fees for store owners, she added.

“The biggest cost of doing business is labour; the second-biggest cost used to be real estate. Interchange fees have now overtaken real estate,” Ms. Kothawala said. “... Lack of quick 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 co-ordinated letter-writing campaign in August for members to ask their MPs for more progress on the issue.

“We want the minister to keep the commitment that rates for small and medium-sized businesses should be similar to what’s paid by big business,” said Gary Sands, CFIG’s vice-president of government relations.

Federal lobbying records show 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 talk to the government about its plans to lower credit-card interchange fees.

A number of businesses and groups from a wide array of industries have registered on this topic as well, including Walmart Canada Inc., the Canadian Energy Marketers Association (which represents fuel retailers such as gas stations) and the Canadian Chiropractic Association.

Alison Dantas, chief executive of the Canadian Chiropractic Association, said many health care clinics are operated as small businesses and have faced higher expenses during the pandemic.

She said her members are not in favour of passing on the transaction fees to patients through surcharges, and would rather the government act to lower the fees altogether.

Restaurants Canada was among a number of groups in Ottawa last week advocating on this issue, according to James Rilett, the group’s vice-president for central Canada.

“Even in the best of times, our profit margins are around 4 per cent; postpandemic, on average it’s around 1.5 to 2 per cent,” he said. “We’re basically giving the credit-card companies more money than we’re making ourselves.”