More than a year into unproductive negotiations, Canada's banks and credit-card companies are bracing for Ottawa's final verdict on interchange fees which could come as early as Monday.
According to people involved in the discussions, the Finance Department – frustrated with the pace of negotiations – asked the credit-card companies to submit their final proposals last Monday.
Ottawa has been largely silent since, and sources say the industry is anxiously awaiting an announcement from the government that could include a cut in credit card fees paid by merchants.
On Bay Street, the future of these fees has become a hot topic.
They generate significant revenue for credit-card companies such as Visa Canada Corp. and MasterCard Inc., as well as for the Big Six banks.
Whenever Canadians pay for goods or services using a credit card, the merchant is charged a fee – typically between $1.50 and $3 for every $100 spent. In 2010, the federal Competition Bureau estimated these fees amounted to $5-billion annually – and credit-card use has grown in the years since. These fees are usually passed on to consumers in the form of higher prices.
Canada's small businesses – a key support group for the Conservative government – dislike the fees as they cut into profit.
The federal competition bureau also attempted to fight on behalf of consumers who pay for goods and services with cash, arguing the fees have been unfairly embedded in prices, regardless of the method of payment.
Throughout the yearlong negotiation process, the Finance Department has listened to suggestions from key players such as banks and small businesses, but has leaned on credit-card companies to lead the charge. Both Visa and MasterCard have argued there is no need for regulation – yet a resolution still hasn't been reached.
"Voluntary action means government and the payments sector avoid potentially costly and disastrous regulation, which is more likely to harm consumers than benefit them," MasterCard wrote in a recent op-ed published by The Globe and Mail.
Sources say there are now widespread concerns in the industry as to how far new regulations might reach. The Finance Department has made clear its disappointment with the industry's inability to reach a resolution.
After agreeing to address interchange fees in its latest federal budget, the Finance Department said in early September that it was looking for a voluntary fee cut. Asked to comment on the status of the negotiations on Sunday, Ottawa said it remains committed to the position laid out in the budget.
The late Jim Flaherty was the first finance minister to tackle interchange fees after the federal Competition Tribunal punted the issue to the government in July, 2013. Mr. Flaherty took a particularly aggressive approach, making it clear that the major players needed to reach a solution themselves – or he would step in.
Current Finance Minister Joe Oliver initially tried to take a calmer approach, sources say, but has more recently adopted Mr. Flaherty's position.
The business of interchange fees is seen as an incredibly difficult issue. If fees are lowered, the banks and credit card companies could raise the interest rates they charge on these cards, jack up annual fees or make it harder for Canadians to earn loyalty points.
Despite the complexity, those at the table who are looking to compromise say the Finance Department has a right to be frustrated.
"When someone gives you a year to find a solution, and you can't …," said a senior bank executive, "It's kind of, 'Shame on you.'"