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Small business organizations express frustration with government plan on swipe fee reductions

By Jordan Maxwell

The Canadian Federation of Independent Grocers (CFIG) is calling out the federal government for not going far enough to level the playing field for small business owners by lowering credit swipe fees.

“We’re extremely disappointed and, to be honest, angry because the government broke its promise to reduce fees for small and medium-sized businesses,” Gary Sands, senior vice president of the Canadian Federation of Independent Grocers, said in a statement.

“There’s not a single independent grocer in Canada who will benefit from a rate reduction with the thresholds they sent.”

Sands’ comments come after the federal government officially inked agreements with major credit card giants, Visa and Mastercard, to significantly reduce transaction fees for small businesses. The CFIG was among grocery and restaurant organizations advocating lower swipe fees with the federal government.

The deal, unveiled Dec. 5, promises relief for over 90 per cent of Canadian companies accepting credit cards and aims to safeguard the reward points accrued by consumers, courtesy of the nation’s leading banks. This respite is anticipated to collectively save eligible Canadian small businesses an estimated $1 billion over the next five years, a statement reads.

To qualify for these reduced interchange fees, small businesses with an annual Visa sales volume below $300,000 and those with an annual Mastercard sales volume below $175,000 must meet the criteria individually for each credit card network. Additionally, non-profit organizations with transaction volumes falling below these thresholds could benefit from reduced rates.

However, Sands says the measure doesn’t go far enough to alleviate the pressure on small businesses, especially post-pandemic, as consumer habits and spending patterns have changed with more online and credit card transactions than cash payments.

“Groceries are a high-volume, low-margin business. If you’re setting the threshold for $175,000 in MasterCard sales and $300,000 in visa sales, tell me a grocer in Canada that exists on sales of $300,000,” Sands said. “We believe that all businesses should be paying similar rates. I don’t think they should have been picking a threshold of sales, especially for grocery where volume has nothing to do with margins.”

Still, the federal government says some small businesses could see a 27 per cent decrease in swipe fees from the weighted average rate. Under the agreement, the annual weighted average interchange rate for in-store transactions is reduced to 0.95 per cent.

The agreement includes a 10-basis point reduction in domestic consumer credit interchange fees for online transactions, translating to potential savings of up to seven per cent. Moreover, it provides complimentary access to online fraud and cybersecurity resources designed to assist small businesses in expanding their online sales while fortifying defences against fraud and chargebacks. The agreements also include a commitment from Canada’s major banks to safeguard Canadian cardholders’ reward points.

Reaction mixed among other business organizations

The Canadian Federation of Independent Business (CFIB) welcomed the news Dec. 5. CFIB president Dan Kelly said reducing fees for small businesses in processing online transactions and providing additional help with online fraud will help encourage more small firms to go digital.

“Small businesses need financial relief now as they’re dealing with low sales, high borrowing costs, pandemic debt and labour shortages. And with the Canada Emergency Business Account (CEBA) repayment deadline just over a month away (January 18, 2024), CFIB worries many small businesses may not last long enough to see the benefit of today’s announcement,” Kelly said.

Restaurants Canada also applauded the move back in May. However, some organizations feel differently about the decision.

In a letter from the Convenience Industry Council of Canada (CICC) sent to the federal government in May, president and CEO Anne Kothawwala said “… This decision caters to the banks and credit card companies who continue to report record profits on the backs of our local businesses,” the CICC said in the letter, signed by the CFIG and the Association des détaillants en alimentation du Québec.

“Qualifying businesses will save a maximum of $1,080 annually; a very small sum that will make a limited difference for both local businesses and consumers who are looking for lower prices.”

According to a 2019 BDC survey of more than 1,400 Canadian businesses, Canadian small business marketing costs average just over $30,000 a year, while those with 20 to 49 employees spend twice that amount.

Companies with 50 or more employees tend to have marketing budgets above $100,000, the survey reads.

With swipe fees paid by businesses in Canada topping an estimated $10 billion a year, says Sands, more could’ve been done to support mom-and-pop shops, especially with rising interest rates and food prices. He added that big box stores like Walmart enjoy swipe fees of one per cent, while small businesses pay an average of 1.4 per cent.

“We pointed out to the government that if they really want to address the issue of food prices and affordability, why not make a serious dent in that $10 billion a year and interchange fees?” Sands said. “There’s no way anyone can argue that if you’re collecting $10 billion a year in interchange fees that doesn’t have an impact on prices, and not just in grocery, but everywhere. Reducing the fees doesn’t cost the taxpayer a cent, so it’s clear they opted to side with Bay Street over Main Street, and that’s unfortunate for independent grocers — and unfortunate for Canadians.”

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