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International Perspective: Canadian Retailers’ Renewed Fight Against Excessive Credit Card Interchange Gaining Traction (MAG Quarterly- Volume Four, Issue Four)

By Karl Littler, Vice President, Public Affairs, Retail Council of Canada 

December 1, 2016

Walmart Canada’s decision to disenable Visa acceptance in-store at an increasing number of locations has revived political and media interest in the interchange issue in Canada.  

In tandem with the introduction of a Private Member’s Bill in the Canadian House of Commons (C-236 An Act to amend the Payment Card Networks Act (credit card acceptance fees)), the Walmart moves prompted Minister of Finance Bill Morneau to announce on September 14, 2016 the Canadian government’s intention to review the payments marketplace, including fee levels:

"In order to ensure that there is, in fact, adequate competition and transparency for Canadian businesses and consumers when it comes to the fees they incur when using credit cards, the Government will conduct a further assessment of the fees charged by credit card networks and review the effects of the fee reductions.”i

This is a significant evolution from the Department of Finance’s previous refusal to reopen the issue while a five-year voluntary agreement by Visa and MasterCard remains in place to reduce interchange fees to a weighted average of 150 basis points (from 161bps and 174bps, respectively), introduced in May 2015.

As the leading advocate in Canada for a regulated solution to the credit card fee problem, Retail Council of Canada welcomes the new opportunity from the Minister of Finance to shine a light on the multi-billion dollar costs imposed on all Canadians by Visa and MasterCard.

Simply stated, credit card interchange fees remain far too high in Canada, with the credit card duopoly charging merchants in Canada – and ultimately Canadian consumers – five times what they charge in other markets (e.g., the United Kingdom and the European Union) for essentially the same services.

Canadian businesses and consumers pay C$5.8 billion more each year than they would if our credit card rates were comparable to the 0.30% cap in the EU. At the current 1.50% average rate, over the four remaining years of the voluntary agreement, Canadians would pay at least C$23 billion more than they should. 

Merchants are highly competitive by nature and are rarely to be found among those calling for increased regulation but the absence of competition and the price-signaling in the credit card industry makes this situation exceptional.  

While there is a long way to go in convincing the Canadian government to intervene directly on interchange fee levels, recent events and especially Walmart’s decisions have challenged the networks’ and banks’ assumptions that they had bought a five-year safe harbor through their minor voluntary reductions introduced in 2015.

Retail Council of Canada met last week (October 25) with Linda Lapointe, the proponent of the Private Member’s Bill, will meet next week (November 11) with Finance Minister Morneau and is actively supporting both Walmart’s efforts re Visa in particular and a broader campaign re both networks’ fee levels.

Areas of research focus will include the reverse-Robin Hood impact that high fee cards have on low and modest-income consumers buying groceries, gas and other necessities and the run-up in consumer indebtedness that has tracked the banks’ aggressive promotion of consumer rewards card programs.

i See