Last updated October 25th, 2024
So, you’re trying to understand what’s going on with the government-mandated interchange fee reductions for Visa and Mastercard in Canada. Well, friend, grab an oar because we are in the same boat. 🛶
The good news: after a whole lot of internet sleuthing, webinar attending, and payments-expert-harassing, we have it figured out. So, if you’re up for it, buckle up that life jacket and let’s get paddling - we’ve got a lot of water to cover!
Let’s start by getting our feet wet.
Here are some basic concepts that you’ll want to have in mind as we discuss the new interchange fee reductions.
Interchange fees:
An interchange fee is the percentage of each transaction that a credit card company charges when you receive a payment via one of their cards. These fees vary based on the specific card and conditions of every transaction (more on that below), but will always be the largest component of the total cost of payment processing.
Additional fees:
In addition to interchange, every transaction is subject to added fees from banks, card processors, card brands, and PCI compliance. We dive a little deeper into understanding these fees in this blog post if you’re interested. 🤿 It’s important to note that none of these fees are being reduced as part of the new regulations.
Fixed rates:
This is what Jane Payments uses. No matter what the fees are on a credit card you’re accepting, you’ll pay the same rate.
Example: The rate you pay on every single transaction via the Jane Payments Terminal is 2.5%.
- You pay 2.5% when you’re being paid with one of those fancy business rewards cards with fees much higher than 2.5%
- You pay 2.5% when you’re being paid with a super basic card that has fees lower than 2.5%
- You never have added monthly/annual costs, contracts, or admin tasks to maintain PCI compliance
Jane deals with all the variable interchange fees, added costs, and compliance and you get one, stable, per-transaction rate. 💙
Basis Points (Bps):
Bps are a unit of measure often used in finance to describe a percentage change. A single basis point is 1/100th of a percent (0.01%).
Example: If your credit card rate is 2.65% and it gets reduced to 2.50%, it has been reduced by 15 basis points.
Time to go down the rapids.
Which Visa and Mastercard transactions are eligible for reduced interchange fees?
Not all transactions will be eligible for reduced fees. An interchange fee, and whether it qualifies to be reduced, is determined for every individual transaction based on several factors.
Below, we’ll look at what factors are important in determining interchange fees and how the fee reductions have been applied.
What kind of card is being used?
There are three main elements that determine the interchange fee here:
- Card brand: Visa, Mastercard, American Express, Discover, etc.
- Card type: Consumer, Business, or Student
- Card rewards: The kinds of perks, points, or cash-back a card offers
Basic, low rewards student or consumer cards will have lower interchange fees, while high rewards cards or business cards will have higher interchange fees.
❗How does this impact Visa & Mastercards interchange fee reduction?
- Only consumer cards issued by Visa or Mastercard are eligible for reduced interchange fees. Student and business cards issued by Visa and Mastercard, as well as any card issued by another card brand (ex. American Express) will not qualify for reduced fees.
- Fees have been reduced more for rewards cards than basic cards.
- For example: Mastercard’s Core card (basic, low reward consumer card) has had its interchange fee reduced by 20 bps (0.2%), while the higher reward, more expensive World Elite card has been reduced by 34 bps (0.34%).
- In general, we see patients/clients of Jane clinics paying with basic consumer cards more often than the more expensive rewards cards.
Is the transaction happening with the card present or not?
Interchange rates for card-present transactions are always lower because there is generally less risk of fraud when someone presents their card to you in person.
❗How does this impact Visa & Mastercards interchange fee reduction?
- The fee changes are overwhelmingly applied to card-present transactions, with reductions ranging between 20-58 bps depending on the card type & rewards.
- Both companies applied only a 10 bps fee reduction to card-not-present transactions.
Who is eligible for the new reduced interchange fees?
The government of Canada regulations have been put in place to help reduce fees for smaller businesses. Your business may be eligible for reduced fees from one, both, or neither card brand.
Visa:
Your business will qualify for reduced interchange fees on eligible Visa transactions (see below) if you accepted < $300k in payments from Visa credit cards across all payment platforms between May 2023 - April 2024.
Mastercard:
Your business will qualify for reduced interchange fees on eligible Mastercard transactions (see below) if you accepted < $175k in payments from Mastercard credit cards across all payment platforms between May 2023 - April 2024.
Based on the total processing volume from each card brand (Visa and Mastercard) last year, some businesses may be eligible for reduced interchange fees on transactions from one, both, or neither card brand between now and April 2025.
Reassessments:
In April 2025, Visa and Mastercard will reassess if a business is eligible for reduced fees based on total transaction volume for each from October 2023 - September 2024. This cadence of reassessment will be followed annually moving forward.
Getting back on dry land.
How does this all work with Jane Payments’ fixed rates?
That is the question the payments team here at Jane has been trying to figure out as well.
It’s tricky because, with our fixed rates, our customers will have the same rate for every card-present or card-not-present transaction, regardless of card brand, type, or rewards.
But, as I mentioned up top under the ‘Fixed rates’ section, Jane will still have variable interchange fees and additional fees to navigate. So, we’ll need to keep an eye on how many of the total transactions going through Jane Payments qualify for reduced fees to make sure we’re not passing along too much or too little of a reduced rate.
Jane Payments Terminal Rates:
To pass on as much of the potential savings as we can, we’ve lowered our Jane Payments Terminal (card present) rates from 2.65% to 2.5% for all Canadian clinics. Interac debit transactions will remain at $0.10.
This means Jane Payments Terminal users in Canada will receive a 15 basis point reduction on all card-present credit card transactions, regardless of card brand, type, or rewards. We hope this provides a similar value to the reduction in Visa and Mastercard fees for qualifying transactions for our community. 💙
Jane Payments Online Rates:
We’re keeping our Jane Payments Online (card-not-present) rates the same at 2.75% for a couple of reasons. The biggest one is that Visa and Mastercard only reduced their card-not-present fees for qualifying transactions by 10 bps (0.1%).
The other is that we’ve kept our card-not-present credit card rates below industry standard (which is 2.8% + 30¢ - 3.3% + 15¢) to allow clinics to take advantage of all the benefits of online payments. So, between that, and the number of transactions that come through Jane’s Online Payments that wouldn’t qualify for lower fees, the 0.1% reduction from Visa and Mastercard didn’t give us enough wiggle room to be able to meaningfully reduce that rate for everyone at this time.
Will Jane consider changing your rates again in the future?
We’re definitely still watching and learning — this change is new to us too! If we see that the majority of our clinics qualify for reduced fees, we may be able to make further reductions in our rates. If we learn that more than we anticipated don’t qualify, we may have to adjust again. We’ll keep you posted either way.
Sources:
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Government of Canada announces finalized agreements with Visa and Mastercard to lower credit card transaction fees for small businesses, Innovation, Science and Economic Development Canada