Great News For SMEs in Canada: Federal Government Lowers Credit Card Fees
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16 Jun 2023
In the latest federal government news, the Department of Finance, Canada, has announced reduced credit card fees for small businesses. SMEs will benefit significantly from the latest change introduced by the government.
Note:
Interchange Fees Lowered For Small Businesses
During the Budget 2023 announcement on March 28, the deputy prime minister of Canada also promised to lower the transaction fee for credit cards for small businesses. It has fulfilled the promise by disclosing its finalized agreements with Canadian credit card companies Visa and Mastercard. New MasterCard & Visa interchange fee rates under the agreement:| Subject | Type of transactions | Difference |
| Reducing domestic customer credit interchange fees | In-store transactions | Annual weighted average interchange rate of 0.95% |
| Reducing domestic customer credit interchange fees | Online transactions | 10 basis points reduction, resulting in of reduction of up to 7% |
| Free access to online fraud and cyber security resources for assisting businesses in growing online sales, while also safeguarding them from frauds and chargebacks. | ||
- New changes will not adversely affect the interchange fee of other businesses.
- Also, it will not affect the reward points consumers receive for using their cards.
- The new rate will come into effect by fall 2024 for systems to update the changes.
How Will Qualifying SMEs Benefit From The Lesser Credit Card Fees?
Any business accepting payments through credit cards pays a fee to the card-issuing financial institutions. The interchange fee is the most significant component of these payments. The revised charges will benefit more than 90% of qualifying card-accepting businesses. SMEs can expect their interchange fee lowered by up to 27% from the present weighted average rate. Over the next 5 years, the eligible SME sector will save around $1 billion. It will give them more funds to invest and grow their business. An enterprise will individually benefit from each credit card network. For example:| Annual Visa sales volume | Less than $300,000 | Qualify for a lower interchange fee from Visa |
| Annual MasterCard sales volume | Less than $175,000 | Qualify for a lower fee from MasterCard |
| NGOs with these transaction thresholds are also eligible for the benefit. | ||
Examples:
- There is a sports store that earns $300,000 through credit card sales. Out of this, $200,000 is earned through Visa sales, and $100,000 via Mastercard. Every year, they paid $4,000 as an interchange fee for receiving payment via credit cards for their sales.
- In another example, a bookshop registers sales of $120,000 with credit cards annually. Out of this, $70,000 were via Visa sales and $50,000 through Mastercard. As of now, the business needs to pay $1,600 every year as an interchange fee.
