Skip to main content
A scary good deal on trusted journalism
Get full digital access to globeandmail.com
$0.99
per week for 24 weeks SAVE OVER $140
OFFER ENDS OCTOBER 31
A scary good deal on trusted journalism
$0.99
per week
for 24 weeks
SAVE OVER $140
OFFER ENDS OCTOBER 31
// //

Bank towers are seen in the financial district in Toronto, January 28, 2013.

MARK BLINCH/Reuters

Senior executives at Canada's largest financial institutions are on pins and needles this week. Some are arguably on the verge of freaking out. After years of uncertainty, Ottawa finally looks set to rule on credit card interchange fees.

It's a messy, complex file that has hung over banks and credit card companies for nearly five years. Because so much time has passed since the federal Competition Bureau first tried to tackle the issue in 2010, it can be hard for outsiders to appreciate how much money is now at stake – and why there's so much anxiety.

When the Bureau first did their research, they estimated interchange fees, which are charged every time someone pays for goods or services using their credit card, amounted to $5-billion annually. Since then, updates have been hard to come by because the banks do not break out interchange revenues in their financial statements. When pressed, they often say they don't disclose such information for "competitive reasons."

Story continues below advertisement

But analyst Gabriel Dechaine at Canaccord Genuity, who has followed the credit card file closely, recently took a stab at running some numbers to predict the extent to which the Big Six banks would be affected by a fee cut.

Overall, Mr. Dechaine estimated that interchange revenues comprise four per cent of Canadian banks' earnings per share. If there is a 10 per cent haircut to interchange fees, he expects that EPS would fall by one per cent, all other things being equal.

That may not sound like much, but there's more to the story.

First, if a cut comes, it could very well be greater than 10 per cent. Plus, one per cent of EPS matters more and more in this environment. "While not a devastating amount, it is clearly not helpful to a sector struggling to generate five per cent revenue growth in its Canadian [personal and commercial banking] operations," Mr. Dechaine wrote in a note to clients in September.

The growth potential must also be considered. Credit card use is booming, and will likely only continue. In 2008, credit card transaction volumes from Visa and MasterCard networks in Canada amounted to roughly $255-billion; in 2013 they totalled $350-billion. This seven per cent compound annual growth rate compares to a 4 per cent equivalent rate for Interac volumes.

So even if the immediate hit doesn't seem too dramatic, the new rules would cut into a hot revenue stream. And maybe more importantly, it cuts into a source of profits that, aside from this regulatory threat, is more or less risk-free.

In an era where the banks are trying to get back to basics, transaction fees are some of the safest revenues they can find. "Credit card growth has become more valuable to the banks from a balance sheet perspective, as we are in an environment where capital has become dearer and leverage has become a bad word," Mr. Dechaine noted.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies