Relieving the burden of credit card fees for small merchants

Some small business owners will benefit from a reduction in credit card processing card fees proposed by government

// By Corinne Pohlmann, Vice-President of National Affairs and Partnerships, Canadian Federation of Independent Business

Canadian merchants pay some of the highest credit card merchant fees in the world, and the 2023 federal spring budget took a step in the right direction to alleviate some of their cost pressures.

A deal to lower fees

The federal government has made a deal with Visa and Mastercard to lower credit card fees by up to 27% for some small businesses that process these cards. The budget was light on details and it’s unclear yet how many small businesses will benefit from this plan.

With the pandemic-driven boom in e-commerce, the usage of credit cards has rapidly increased in the past few years. More recently, with household budgets being under pressure because of inflation, more consumers are paying with a credit card just to have more time to pay the bill or collect reward points.

Merchants absorbing costs

While consumers love their credit card reward points, processing fees for merchants add up quickly. Every time a customer uses a credit card, small merchants pay on average between 1.5% to 2.5% of the sale in processing fees. That forces merchants to absorb high processing fees or pass the costs on to customers.

Small business concerns

CFIB recently surveyed its members, and 74% said they want to see credit card processing fees drop to no more than 1% of the total dollar sale. That would require the interchange rates to be set at 0.7% or less – half of the current average of 1.4%.

Like consumers, business owners are dealing with high costs on every line of their budget. A majority (81%) of small firms say they take a hit to their bottom line to cover the costs of accepting credit cards.

Growing the business

Yet, many small merchants feel they have no choice but to continue accepting credit cards to retain their customers and grow their business. For small firms, credit card fees associated with in-store sales (49%) and online/ecommerce sales (39%) have increased over the last three years, according to CFIB’s research. This may have more to do with the fact that merchants are processing a larger volume of their sales through credit cards or ecommerce than because of any fee or rate hike during that time.

Fairness and opportunity

Nearly 80% of business owners say that the current credit card processing fees they pay are not sustainable. Small Canadian merchants deserve fairness when it comes to accepting credit cards. CFIB was pleased when Ottawa committed to working with the payments industry to further reduce credit card fees in its Fall Economic Statement. We were also pleased to see the government follow up with action in the recent budget and commit to encouraging reductions to other cards, such as American Express.

Running their business

By lowering credit card processing fees and ensuring that any changes made are simple to understand, the payments industry and the Canadian Federal Government can let business owners focus on what they do best: running their business.

If you’re a business owner and agree with what we’re trying to do, you can add your voice to CFIB’s petition to lower credit card fees at cfib.ca/ CC-petition.

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Corinne Pohlmann is the Senior Vice-President of National Affairs and Partnerships at CFIB, Canada’s largest association of small and medium-sized businesses with 97,000 members across every industry and region, 22,000 of whom are operating in retail.