Credit card transaction fees in Canada, a major retail challenge

The Quebec Retail Council has been advocating for the regulation of credit card interchange fees in Canada for many years, which, it should be noted, are among the highest in the world.

Credit card interchange fees: a bit of context

The explosion followed by the stabilization of online commerce, coupled with the widespread use of payment cards, especially credit cards, puts tremendous pressure on retailers. It is important to note that the use of payment cards, particularly credit cards, is not free. Fees, known as interchange fees, are charged to the retailer for the use of these services. Generally, these fees represent a percentage of the transaction value. In reality, this amounts to a disguised “tax” that penalizes retailers and their customers. It would be naive to think that these fees do not impact the prices of products sold in stores, as they add to the operational costs of the retailer. In a context of labor shortage, this adds another upward pressure on the prices charged in the retail sector, thereby reducing the competitiveness of retailers in Quebec.

While these fees also exist for debit cards, they are capped and among the lowest in the world. However, the situation is quite the opposite for credit card fees, where Canada unfortunately ranks among the countries with the highest rates. According to data compiled by the Federal Reserve Bank of Kansas City in the United States, these fees reach nearly 1% for “basic” cards and 2% for “premium” cards, which constitutes a substantial burden for retailers. The situation is even more concerning for e-commerce.

Frais d'interchanges cartes de crédit - canada
Frais de cartes de crédit - commerce de détail

Interchange fees: a competitiveness issue

The Quebec Retail Council still believes it is urgent for the federal government to limit credit card transaction fees to enable retailers to reduce their costs and contribute to a strong recovery. The average rate, which rose to 1.4% in Canada in May 2020, should promptly be reduced to the European level of 0.5%. Limiting credit card transaction fees to a maximum rate of 0.5% is, in fact, one of the two recommendations that the Council made during the submission of its brief for pre-budget consultations in anticipation of the federal budget 2022-2023.

Interchange fees: a social issue

Credit card issuers do not lack creativity in launching new “Elite or Privilege” cards, sometimes with double the rate of those considered “basic.” According to our analysis, the fees from basic cards are used to finance the benefits that elite cards offer to their customers.

This involves a transfer of benefits from clients with fewer means to a wealthier clientele.

Moreover, interchange fees are even charged on transactions related to donations and sponsorships, penalizing charitable organizations as well. These hidden deductions are made at the expense of essential social causes.

The Quebec Retail Council believes that the government should instead promote the principle of user-pay and transparency regarding the fees associated with these programs. The European Union estimates that the cap has saved customers over 1.5 billion Euros since its implementation. In connection with the issues raised here, the Council has made two requests as part of the recent consultations for the federal government’s 2022-2023 budget.

  • Recommendation 1: Require credit card issuers to reduce interchange fees to a maximum average of 0.5%.
  • Recommendation 2: Eliminate fees charged to merchants on the GST/HST amount during credit card transactions.

We have also requested the government of Quebec to support our appeal to the federal government for the regulation of interchange fees, and for these two recommendations to be implemented. You can review both of our submissions made during the federal and provincial pre-budget consultations for the year 2022.

Examples to follow: The European Union and Australia

After several years of deliberation, the European Union imposed a regulation in 2015 that caps interchange fees at 0.3% for consumer credit cards. Regarding consumer credit cards, this regulation also allows Union countries to set lower caps than 0.3%. Concerning merchants, it enhances transparency regarding the level of commissions paid, enabling them to more easily choose the credit cards to accept. In Australia, the government has capped these interchange fees at 0.5% of the transaction value.

Charging additional fees to consumers on certain credit card transactions in Canada

Following the settlement of a class-action lawsuit against credit cards, Visa and Mastercard now allow small and medium-sized enterprises (SMEs) in Canada to charge additional fees on certain credit card transactions since October 6, 2022, to help offset their costs. However, this is not permissible in Quebec as the Consumer Protection Act prohibits this practice.

Fall 2022 Economic Statement: reducing credit card transaction costs for small businesses

During the Fall 2022 Economic Statement, the federal government announced a specific measure affecting retailers, related to reducing credit card interchange fees.

It stated that it would negotiate with the payment card sector and businesses to lower credit card transaction costs for small businesses “without harming other businesses” and “while protecting existing reward points for consumers.”

The statement indicates that if the industry fails to reach an agreed-upon solution in the coming months, the government will introduce these legislative proposals in 2023 and proceed with the regulation of payment card transaction fees.

The Quebec Retail Council will closely monitor this issue and continue its advocacy efforts to swiftly advance this crucial matter for all retailers in Quebec and Canada.