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10/21/2022

The same old story can’t continue – time to reduce credit card fees

The cost of convenience is quickly becoming unsustainable and threatening the prosperity of Canadian communities.
Anne Kothawala
President & CEO, CICC
Anne Kothawala profile picture

It’s no secret that small businesses are the economic engine powering the Canadian economy. In fact, out of the 2.1 million businesses in Canada, an astounding 98% have less than 100 employees. 

Canada’s convenience industry is fuelled by small business, regardless whether retail stores are part of a larger corporate banner or are independently owned. Our sector’s 23,000 stores are the lifeblood of communities from coast to coast and our 202,000 employees ensure that Canadians are well served.  

Prime Minister Justin Trudeau recognized the importance of our industry on social media as his government celebrated Small Business Week recently.  

“From your local grocery store you visit every weekend, the coffee shops you pass on your way into work, and the corner store or dépanneur that always seems to be open, small businesses are the heart of our communities and the backbone of our economy,” he said in a press release. 

We concur with the Prime Minister. But we need more than words of recognition to help our industry. 

What he forgot to mention is that Canada’s small businesses, particularly our c-stores, are facing a perfect storm of rising costs and less traffic. He also overlooked the fact that his government can take immediate action to alleviate one critical issue that is rapidly erasing already razor-thin profit margins – exorbitant credit card interchange fees. 

CICC has long argued for interchange fees to be capped, like they are in Australia and the European Union. Our view is straightforward: banks and credit card companies shouldn’t be able to force small retailers to bear the costs of their card reward programs.
 

As a result of a class action settlement, Visa and Mastercard have agreed to allow merchants to pass on the costs of processing credit cards to their customers, up to a maximum of 2.4%. This practice is referred to as surcharging. 

While this is superficially attractive, surcharging is not the answer to the interchange fee problem. A retailer who tries to pass these fees on to their customers will lose them to larger, better-financed competitors who decide to absorb the cost. This will hurt smaller retailers who will then be forced to abandon surcharging. 

Context is key. At this time when customers are price sensitive due to the increased cost of living, retailers will have a tough time passing on the interchange fee.

It’s time to deal with the fundamental problem: the exorbitant interchange fees charged by an oligopoly of credit card companies and banks which bear no relation to the cost of processing these transactions. Banks shouldn’t be able to impose their marketing costs on small businesses, either directly or indirectly. 

It’s time to have an honest conversation about who really pays for that trip to the Caribbean. Retailers are the ones that are paying higher interchange fees to support the rewards for premium cards, even though the use of those cards does not benefit them.

We are encouraged by the Prime Minister’s words: “When small businesses succeed, our economy grows. Jobs are created. And our communities thrive. That’s why we’ll keep working with small business owners to help them grow and succeed…”

However, Mr. Prime Minister, it’s time – time to work with our industry to help us grow and succeed. We’ve heard the same story the past 15 years, under both Liberal and Conservative governments, yet here we are today – at a tipping point. 

We can and must do better.

Ideally, Ottawa should impose a cap on interchange fees, or at least force the banks to charge the same fees for every type of credit card. 

Credit card transactions are now the norm, which has resulted in a 55% increase in retailer interchange fees according to a CICC member survey. This can’t go on. 

The cost of convenience is quickly becoming unsustainable and threatening the prosperity of Canadian communities. We need action, not words of encouragement. 

Let’s hope that during Small Business Week 2023, we won’t be hearing the same old story.

 

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