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MasterCard Canada sets new tone in fee battle

On April 3, most members’ interchange fees for regular credit cards will drop by 12.5 per cent to 1.26 per cent of the value of a customer’s purchase from 1.44 per cent currently.

Soe Zeya Tun/Reuters

A small-business group has won lower merchant fees for its members from MasterCard Canada, a move that could put more pressure on credit-card firms to reduce their rates and prompt other associations to seek preferential pricing.

The Canadian Federation of Independent Business, which represents more than 100,000 small firms, is set to unveil on Thursday a deal with MasterCard that will reduce most of CFIB members' transaction fees to levels that are now offered to just a small number of the country's largest merchants, those with annual MasterCard sales of $3-billion or more.

It will mean that, starting on April 3, most members' interchange fees for regular credit cards will drop by 12.5 per cent to 1.26 per cent of the value of a customer's purchase from 1.44 per cent currently.

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Opinion: Small retailers also need a break from credit-card fees

Those rates will decrease by 22 per cent for premium credit cards – to 1.38 per cent from 1.77 per cent – and by 7.8 per cent for ultrapremium plastic, to 1.9 per cent from 2.06 per cent.

The initiative comes amid rising pressure from retailers and other businesses for lower credit-card fees, highlighted last summer when discount behemoth Wal-Mart Canada Corp. stopped accepting Visa cards in Thunder Bay and Manitoba, complaining that the fees were "unacceptably high."

In January, Wal-Mart and Visa came to an agreement that ended the dispute, although neither side has disclosed the details of their deal.

In the latest CFIB-MasterCard agreement, "what this shows is that the landscape has changed," Dan Kelly, president of the CFIB, said in an interview. In the past, "merchants have felt rather powerless in terms of influencing the rates that they pay. But in the last few years, with a lot of leadership from the credit-card industry, from the payments industry and some help from government, things have changed an awful lot."

CFIB's move to get better rates for its members marks a new front in the credit-card-fee battle. Individual companies, such as retail giants Wal-Mart and Costco Wholesale Corp., have reached their own deals with Visa and MasterCard, respectively, for some breaks.

But associations have not secured their own interchange fees for their members collectively.

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Indeed, CFIB and other groups have raised concerns that the deals for the big companies could lead to higher costs for smaller businesses.

The CFIB-MasterCard agreement now opens the door for other associations to follow suit, said Richard Crone of payments specialist Crone Consulting LLC in San Carlos, Calif.

The credit-card companies "will be deluged by others trying to do the same," Mr. Crone predicted. He wasn't aware of any other association that has got preferential interchange fees. (Groups have secured preferential payment processor fees, which retailers also pay, but those are much lower than the interchange fees.)

But he also said the fees that CFIB won are just "token reductions" and still not close to the 0.3-per-cent rates that have been regulated in other markets, such as in Europe.

Brian Lang, president of MasterCard Canada, said offering a special interchange fee for an association sets a precedent in Canada. "Will there be more of them? Maybe, we'll see how things go."

He said interchange fees in Canada are the lowest among markets such as the United States, South America and the Asia-Pacific region – everywhere except in Europe and Australia.

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He said higher rates are needed so the companies can invest in electronic-commerce innovation. "When rates are dropped down, it stifles that innovation," he said.

MasterCard came to an agreement with CFIB because its members are an important engine of the Canadian economy and the shift to electronic payments, he said.

As well, the deal helps MasterCard honour its commitment to the federal government that it would reduce interchange fees to 1.5 per cent on average.

Last September, federal Finance Minister Bill Morneau said the government would review the fees charged by the credit card networks and the effects of the fee reductions.

Visa and MasterCard agreed in 2014 to lower their interchange fees to an average of 1.5 per cent for five years, starting in 2015, from 1.6 per cent and 1.7 per cent, respectively, thus avoiding having Ottawa set rates.

Both firms have said their audits have showed they're in compliance, although they have not released the audits themselves.

The Small Business Matters Coalition is pushing Ottawa to institute a 0.3-per-cent interchange fee. "We want the rate that is in force in other jurisdictions," said Gary Sands, the coalition's chairman. The Retail Council of Canada is also pushing for lower rates.

Mr. Kelly said some of CFIB's grocery and gas station members already have lower fees than its newly negotiated rates because of the categories they fit into under MasterCard's rules. But the vast majority of CFIB members, which include some individual Canadian Tire, Home Hardware and Merry Maid franchisees, will benefit from the new agreement, he said.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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