The Government of Canada announced today that they have reached a final agreement with Mastercard and Visa to have credit card transaction fees lowered for Canadian small businesses. Qualifying small business will see their interchange fees lowered from the two issuer by as much as 27% over their existing weighted average.
Details of the new agreement
Here are some of the details provided by the Government of Canada:
For qualifying small businesses, Visa and Mastercard have agreed to:
- reduce domestic consumer credit interchange fees for in-store transactions to an annual weighted average interchange rate of 0.95 per cent;
- reduce domestic consumer credit interchange fees for online transactions by 10 basis points, resulting in reductions of up to 7 per cent; and,
- provide free access to online fraud and cyber security resources to help small businesses grow their online sales while preventing fraud and chargebacks.
Small businesses will qualify with each credit card network individually. Specifically, small businesses with annual Visa sales volume below $300,000 will qualify for the lower interchange fees from Visa, and those with annual Mastercard sales volume below $175,000 will qualify for the lower fees from Mastercard. Non-profit organizations with transaction volumes below these thresholds will also benefit from reduced rates.
Small Businesses won’t reap the benefits right away however as the new rates aren’t set to come into effect until the fall of 2024.
How will this affect rewards points and cash back earned on these cards?
Also included in the Government of Canada’s press release today was the following:
As part of these new agreements with Visa and Mastercard, Canada’s large banks have agreed to protect Canadians’ reward points.
What they mean by protect will have to remain to be seen. Does protect mean the earn and redeem ratio will remain the same? Or does it simply mean the credit card issuers will continue to award the same amount of points per dollar spent but then are free to adjust the redemption rate accordingly? Technically the credit card issuers are already allowed to this and do so with regular basis so I’m not entirely sure what is meant by ‘protect’ in this regard. If the wording of the agreement states the actual value of the rewards points must be protected then that’s big news as that could possibly mean a moratorium on devaluations. If any of our readers have further details on this do please let us know!
What about American Express?
American Express is not included in this agreement but did release a statement today in regards to this news:
American Express continues to uphold our voluntary commitments to the Government of Canada and proudly supports the payments ecosystem. We operate a unique business model that does not use interchange fees but will remain competitive with evolving market conditions. Overall, merchants recognize the benefit of partnering with American Express, and we remain dedicated to helping them thrive.
Wrapping it up
Lower credit card transaction fees will be making their way to qualifying Canadian small business in 2024 thanks to a finalized agreement between the Canadian Government and Visa and Mastercard. This is great news for those businesses as this should see them on a more level playing field with large merchants who receive preferred rates from the card issuers thanks to big volume.
For the Canadian consumer this likely will not translate to lower prices at the till. It may potentially affect future rewards as we don’t know the details of what is meant by ‘protecting’ rewards in the agreement. I am hopeful there will not be any devaluations in the context of these rate decreases. In all honesty though it is very easy for the card issuers to adjust earn and burn rates at anytime so to be able to tie it in directly to this agreement could prove difficult.