Government's action on credit card fees a huge disappointment for convenience and gas

"Make no mistake—the vast majority of small businesses will be excluded from this policy," says the CICC.
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OTTAWA - The federal government has finalized agreements with Visa and Mastercard that will see some small businesses pay lower credit card transaction fees, however the move does little for Canada’s 23,000 convenience stores, says advocates.

READ: The taxing reality for Canada's c-stores

On Thursday, the government said 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%. In addition, domestic consumer credit interchange fees for online transactions will be dropped by 10 basis points, resulting in reductions of up to 7%.

However, the reduced fees will apply only to small businesses with an annual Visa sales volume below $300,000 or an annual Mastercard sales volume below $175,000.

The federal government estimated the changes will help 90% of credit card-accepting businesses in Canada by reducing interchange fees by up to 27%.

The reductions, which will come into effect in fall 2024, are expected to save eligible Canadian small businesses about $1 billion over five years.

The agreements also include commitments from Canada's large banks to protect reward points.

"The new agreements secured with Visa and Mastercard will make credit card transactions fairer for small businesses, which have less bargaining power than larger merchants to negotiate lower rates," Finance Minister Chrystia Freeland said in a press release announcing the changes. “With lower interchange fees, small businesses will save money that they can use to grow their businesses and create more good jobs.”

However, the Convenience Industry Council of Canada released a statement of its own, expressing its disappointment in the scope of the announcement and calling it a broken promise.

“Today's announcement on credit card fees is a failed attempt to rectify a major challenge facing small businesses in Canada, including our 23,000 local convenience stores and gas stations. Despite years of lip service to small businesses, the federal government has caved to credit card networks and the big banks who prefer the status quo. Make no mistake—the vast majority of small businesses will be excluded from this policy…. Today's announcement doesn't change the fact that the government is allowing banks and credit card companies to force retailers to pay for their credit card loyalty programs…. Even a qualifying business will only see a maximum $1K reduction to their bottom line. This is hardly the relief we were promised. The scheme benefits only micro-sized businesses, and leaves our stores being treated no different than massive corporations like Wal-Mart or Costco.”

CICC CEO Anne Kothawala addressed the House of Commons Standing Committee directly, outlining the important role the convenience channels plays in the health of the economy, as well as communities. She noted that “the future of our stores in Canada is heavily dependent on smart government policies. We are deeply concerned by the inaction on credit card interchange fees, and contraband tobacco, in the 2023 Budget.”

READ: Federal budget 2023 highlights

In the last 12 months, credit card fees have increased by 55% and now represent the second-highest cost to Canada’s convenience stores, usurping real estate, and second only to payroll.

“We also face a double-whammy on credit card fees, as we pay both an interchange fee on the product sold plus an interchange fee on the tax of that product,” Kothawala said.

C-store and gas stations serve as a valuable tax collector for government. In fact, 42% of revenues are taxes for products, including gasoline, tobacco and alcohol. When customers use cards to purchase these items, convenience and gas operators pay the fees, even though they pass along this portion of the revenue the government.

“While banks and credit network companies will continue to post record profits, Canada’s convenience stores and gas stations will continue to pay millions to be a tax collector for government, with absolutely no return,” CICC argues.

Coming out of the pandemic, it’s a particularly challenging time for the industry. C-stores across are closing their doors in record numbers, with the overall number of locations down by 5%. CICC data shows three stores closed their doors every day in 2021.

The industry is frustrated and there was hope that the government would take decisive action to ensure the wellbeing of the channel.

“This is an issue that our stores have worked with the federal government on since their initial campaign promise to address fees in 2019. Despite years of work on this file, it is now clear that the government has caved to pressure from card networks and financial institutions,” Kothawala said.

Jamie Arnold, owner of Ontario-based Little Short Stop Stores, also weighed in on the federal plans: “This announcement is very disappointing as a small convenience retailer, because I won’t qualify, plain and simple. The government promised to address this issue but didn’t deliver. During the pandemic, I kept our stores open despite a massive decrease in sales and it would have been nice to see government acknowledge the essential role we play in communities by reducing our second-highest cost of doing business.”

The CICC is now calling on the federal government to “fulfill their promise and immediately introduce tangible measures that rectify punitive credit card fees.”

This would include removing the interchange fees charged on the HST/GST portion of a sale. In addition, they are requesting government fix rates for fuel purchases made by credit cards to 10 cents.

Meanwhile, the Canadian Federation of Independent Business (CFIB) reacted positively to the announcement, calling it a “big win for small businesses.''

Nearly three quarters of the association's members will benefit from the rate reductions, CFIB president Dan Kelly said in a statement.

The organization is calling for the reductions to be implemented sooner than the fall of 2024, and for the government to ensure other card brands, such as American Express, take similar measures.

However, the association representing small and medium grocers also sees the fee-reduction announcement as a “broken promise.''

Because of the thresholds set out by the government, not a single small or medium grocer in the country will see their interchange fees reduced, the Canadian Federation of Independent Grocers said in a statement.

The organization said meaningful reductions in interchange fees for grocers could help manage rising food prices, especially in the rural or remote communities, where these grocers are often the only supermarket.

Senior vice-president Gary Sands said his association's members have been waiting more than two years for Thursday's announcement, but called the resulting announcement “baffling'' and “a joke.''

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