Credit card processing is a very important part of the business model common to just about every Merchant Advance client. Yesterday, Canadian Finance Minister the Hon. Joe Oliver announced that two of the world’s largest credit card providers have made important reductions to their interchange or “swiping” fees that could benefit both small businesses and their customers – changes that are the first of their kind in the Canadian market .
Both Visa and MasterCard agreed yesterday to a voluntary reduction of fees, to an average of 1.5% over the next five years. Credit card fees currently range across different card types from around 1.5 to 3.0%. The Canadian Department of Finance summarizes the changes as below:
“The proposals from Visa and MasterCard will:
- Voluntarily reduce their respective credit card fees for consumer cards to an average effective rate of 1.50% for a period of five years.
- Ensure that all merchants receive a reduction in credit card fees.
- Provide a greater reduction for small and medium sized enterprises and charities, which have the least amount of bargaining power.
- Require annual verification by an independent third party to ensure compliance.”
For a business that processes a high volume of credit transactions, accumulated fees may add up to thousands of dollars per month. Saturation of the market with premium-level card products, many offering highly incentivized loyalty programs, has driven fees higher in recent years. The Federal Competition Bureau estimated in 2010 that credit card acceptance fees added up to $5 billion annually. Visa products will see a reduction of 7% overall (from a previous average of 1.61%) and MasterCard products will reduce fees by 14% (from and average of 1.74%.)
The savings effect of lowered “swiping fees” for consumers has been debated: it remains to be seen if the average purchaser really see a reduction in cost of goods. However, for business owners themselves the reduction of fees could create a significant amount of extra bookkeeping breathing room. CBC News quoted a congratulatory reaction to the cuts from CFIB President Dan Kelly, who believes that both merchants and their customers stand to benefit:
“Merchants have been forced to embed these rising fees in the cost of everything they sell, so reducing the cost pressure should help small businesses keep prices down.”
Could your small business use a break on the fees paid to credit card companies? Do you think the changes will be meaningful to your bottom line, or to the buying habits of your customers? Let us know in the comments, on Twitter or Facebook using the buttons below!