MasterCard and Visa Lower Credit Card Interchange Fees, But is It Enough?

Credit card interchange fees have been in the spotlight lately. Interchange fees may be invisible to consumers, but they sure aren’t for merchants. Canadian merchants pay among the highest interchange fees worldwide – between an estimated $5 and $7 billion annually. Merchants have long been lobbying for lower interchange fees. Merchants got their wish a couple years ago. With the federal government threatening to step in and regulate interchange fees, starting in November 2014 MasterCard and Visa voluntarily agreed to cap their interchange fees at 1.5 percent for the next five years.

Are Interchange Fees Really Lower?

We’re approaching the two year mark since MasterCard and Visa made the promise of lower interchange fees. So are interchange fees indeed lower? That’s the million dollar question. According to MasterCard and Visa they are. MasterCard has confirmed its interchange rate between May 1, 2015 and April 30, 2016 was 1.5187 percent, which is 12 percent lower than the previous year. MasterCard has promised to lower interchange fees even more.

Visa has a similar story. Visa says its average effective interchange rate between April 30, 2015 and April 30, 2016 was 1.5183 percent. (In case you’re wondering, MasterCard and Visa didn’t just pluck these figures from think air – they’re from an independent third party.)

Despite the claim of lower interchange fees by MasterCard and Visa, the federal government isn’t fully satisfied and has decided to take a closer look, claiming further study is needed. (Perhaps the ongoing battle between Walmart and Visa has something to do with it.)

“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,” said federal finance minister Bill Morneau.

What Interchange Fees Mean for Cardholders

If you’re a credit cardholder, chances are you’re oblivious to interchange fees. Interchange fees are the fees paid by merchants every time you swipe your favourite credit card fee. Canadians love hockey, maple syrup and credit card rewards. But those rewards come at a cost. Excessively high interchange fees are leading to higher prices across the board. With interchange fees on the rise since 2007, many merchants with razor thin margins have been forced to pass the cost increases onto consumers.

Many feared that imposing lower interchange fees would lead to a reduction in what Canadians love: reward points. Fortunately, that hasn’t happened in large scale. To the delight of cardholders, credit cards for the most part are still offering the same rewards they’ve always offered.

The Canadian Federation of Independent Business (CFIB), which represents small and medium-sized businesses, has been very vocal over the years about high interchange fees. In a press release, the CFIB applauded lower interchange fees, but said there’s still more work that needs to be done.

“While we are pleased with the progress to date, CFIB is calling on the industry to take additional steps to reduce fees for small business, particularly in light of the significantly lower fees available to businesses in Europe, Australia and other parts of the world,” said CFIB president Dan Kelly. “We also welcome the additional assessment planned by the Minister of Finance to ensure adequate competition and transparency.”

The Bottom Line

With a new regime in power in Ottawa, it will be interesting to see if the federal government decides to regulate interchange fees. While this is a step in the right direction, our interchange fees are still a lot higher than Europe and Australia among others. Something has to give. Will cardholders be willing to give up the reward points they love if it means even lower interchange fees? That’s remains the real question at the heart of the issue.