Many Canadian small businesses could soon save hundreds of dollars a year on costly credit card fees, thanks to a deal reached between Ottawa, Visa and Mastercard.
The deal will see qualifying small businesses pay less on credit card transactions by lowering interchange fees paid to banks.
Ottawa expects 90 per cent of Canadian small businesses will qualify for the lower fees, which would save companies an estimated $1 billion over five years in total.
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The finalized arrangement was announced by Finance Minister Chrystia Freeland on Thursday in Brampton, Ont. It was first teased in the 2023 federal budget at the end of March.
On Thursday, Freeland claimed cutting down on costly interchange fees could benefit both small businesses and their customers.
“Canadians pay some of the highest interchange fees in the world, and that lowers the profit margins for small businesses and drives up prices for Canadians,” she said.
Businesses that process less than $300,000 in Visa payments and less than $175,000 for Mastercard over the course of the year will qualify for the relief, which would see interchange fees lowered by up to 27 per cent from the current weighted averages.
In an example prepared by Finance Canada, a sporting goods store with $300,000 in annual credit card transactions split between Visa and Mastercard would typically pay around $4,000 per year on interchange fees.
Under the new system, that business would pay $1,080 less each year, the ministry said.
Dan Kelly, president of the Canadian Federation of Independent Business (CFIB), spoke alongside Freeland on Thursday and said the credit card relief is especially critical after the COVID-19 pandemic.
Not only were small businesses hit hard by sporadic shutdowns and pushed into steep debt to stay alive in some cases, but many were also pushed online to serve Canadians through the lockdowns. Kelly said that meant a greater proportion of their sales were processed through credit cards, which come with higher fees than other in-person transactions.
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“These fees have put huge pressure on the bottom lines of businesses as they tried to get towards the road to recovery,” he said.
“Any relief on any major expense that a business has is enormously helpful to small businesses that are at a critical time.”
Last fall, Canadian businesses were allowed to start putting credit card surcharges on transactions to recoup some of the processing costs.
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Changes to the interchange fee structure will not affect existing credit card rewards regimes with Canadian banks, according to Finance Canada.
The new credit card fee scheme is expected to roll out in the fall of 2024.
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