The Canadian governments has delivered on its promise of lowering the interchange rates for small merchants, defined as doing less than $300,000 CAD in Visa volume, and $175,000 CAD in Mastercard volume.
These merchants stand to see interchange fall an average of 27%, with card present rates lowered to 95 basis and card not present rates falling an average of 10 basis points (the average interchange in Canada is about 1.4%).
While the rules don’t go in effect until late 2024, it would seem to be a win for SMB merchants.
If you’re curious, Interac, Canada’s account-to-account debit system, crossed $338B CAD in volume in 2022. This is about 50% of the volume of all credit card transactions, so it’s not exactly a slouch.
Here’s that table:
And the costs to use Interac are a few basis points – trivial.
For those curious how this compares to US rates, here’s a snippet
“If Visa and Mastercard can afford to reduce their swipe fees in Canada, there’s no reason they can’t do the same here,” MPC Executive Committee member and National Association of Convenience Stores General Counsel Doug Kantor said in a statement. “U.S. merchants and their customers pay twice as much as Canadians and seven times as much as Europeans. It doesn’t make sense that the country that invented the credit card and is home to the two largest card networks on the planet has the highest swipe fees in the industrialized world. It’s time for Congress to act and at least bring competition to U.S. swipe fees.” The MPC says the average U.S. credit card fee for Mastercard and Visa is 2.24%.
In classic government fashion, the Canadian government believes the savings will be passed to the merchants:
These new agreements will help more than 90% of credit card-accepting businesses in Canada qualify for lower rates and see their interchange fees reduced by up to 27% from the existing weighted average rate. These reductions are expected to save eligible Canadian small businesses about C$1 billion over five years.
Canadian Financial Consumer Agency
Let’s rewind the clock to the Durbin Amendment.
In 2010, as part of the Frank-Dodd Wall Street Reform Act, Senator Dick Durbin proposed capping debit card transaction fees from banks with more than $10B in assets.
In effect, he capped fees to 21 cents and 5 bps, which his office thought would save US consumers $15B annually (technically large banks could charge 22 cents if the bank adopted “fraud prevention policies”) as merchants would pass through the savings.
Under the Fed’s final rule, the average big bank debit interchange fee is now about 24 cents (down from a pre-2011 average of 44 cents, but still far higher than the actual cost of debit transactions for big bank issuers which is just a few cents). This fee regulation took effect in October 2011.
From the Bank Policy Institute:
According to the Federal Reserve Bank of Richmond, after the Durbin Amendment was implemented, 98.8% of merchants did not pass through savings realized from debit regulation to consumers, and over 20% increased prices.
Merchants did not pass savings to consumers.
This is also pretty hard to prove, frankly, because you have things like inflation and what not that complicate the merchant cost structure.
Instead, it’s much easier to see pass through values when looking from the acquirer’s side of the table.
Now let’s look at Europe, which aggressively implemented interchange cost reductions in 2015.
The purpose of these measures, which lowered the costs of credit card interchange to 30 bps and debit card interchange to 20 bps in the Interchange Fee Regulation (IFR) was to lower payment processing costs for merchants.
A European Commission study in 2020 found that the interchange caps redistributed revenues from interchange: merchants saved $1.2B Euros annually, and then merchant acquirers gained $1.2B Euros annually.
What?!
That’s right: those super ethical and forthright merchant acquirers didn’t pass along the interchange savings.
And we bet the merchants that DID see interchange savings were larger, billion dollar merchandisers: not your average SMB.
Which brings us back to Canada.
Governments just have no idea how payment bros function.
It’s nearly impossible to root out organized crime.
Because so long as there’s someone who will do anything to make money, you’ll never stop it.
And the problem with payments is that it’s a ton of profit (there’s no costs) for very little work. Because the victims are ignorant as to how payments work, they can really get steamrolled.
Imagine if there were no consequences for rape: you know how many people would be raped daily? The morally-devoid would have zero problems raping people all the way to and from work.
Gotta get some gas, but first let me do some raping on the way.
There are a number of examples that show how bad people are when left to their own devices.
This work reveals something terrible about humanity. It shows how fast a person can hurt you under favorable circumstances. It shows how easy it is to dehumanize a person who does not fight, who does not defend himself. It shows that if he provides the stage, the majority of ‘normal’ people, apparently can become truly violent.
Marina Abramović
Payments bros ARE these types of people, raping merchants at all hours of the day.
Never will you find more billionaires who’ve done less-than-nothing than you will in payments.
And in Canada, we expect acquirers to magically find a 27% increase in margins.
Merchants?
Good luck.
[…] And that’s precisely what transpired. […]