What You Need to Know About Interchange Rates in Canada

What You Need to Know About Interchange Rates in Canada

Like it or not, if you own a business, and you want to accept payments with credit cards and debit cards, you’re going to have to pay interchange fees.

And unfortunately for Canadian business owners, interchange rates in Canada are some of the highest in the world.

Throughout the pandemic, this issue was exacerbated, as the number of cashless transactions and online purchases skyrocketed, and business owners ended up paying more interchange fees as a result.

A recent survey conducted by the Canadian Federation of Independent Business (CFIB) highlights just how difficult this can be for business owners, as 78 per cent of respondents said the credit card processing fees they’re paying are unaffordable for their business.

In addition, a survey of CFIB members asked what the government should do to help small business owners, and 51 per cent said they should reduce the “costs associated with accepting credit cards”.

The problem has gotten so bad, in fact, that the Government of Canada pledged to step in and do something about it.

In 2020, thanks to voluntary agreements between the federal government and credit card companies, interchange rates fell, albeit by an arguably minuscule amount, dropping to an average of 1.4 per cent per transaction from the previous rate of 1.5 per cent.

Then, last year, Canada’s Department of Finance held consultations with stakeholders, including small business owners, in an attempt to work toward lowering interchange fees even further, and ensuring the fees paid by small business owners aren’t disproportionately high.

But so far these consultations haven’t amounted to much, and the 2022 federal budget contains only a vague, three-sentence long blurb on this subject, which states that the government is “committed to lowering the cost of credit card fees” and “will continue current consultations with stakeholders”.

Sadly, some payment processing providers have taken advantage of this situation by trying to lure misinformed business owners in with disingenuous claims about interchange rates.

That being said, in our effort to do what’s best for small business owners, we wanted to publish an article to help them gain greater clarity on this matter.

So, if you want to know more about interchange rates in Canada then keep reading, because in this article we’re going to explain what interchange rates are, how they’re calculated, and dispel one of the biggest myths about these fees, so you can avoid falling prey to false claims.

That being said, since we first published this article, a lot has happened, so if you want to learn about the latest developments on interchange rates in Canada, you can read our article, Feds Finally Reach Deal With Visa and Mastercard to Lower Interchange Fees for Small Businesses in Canada or check out our other articles on interchange rates to learn more.


What Are Interchange Rates?

what are interchange rates

Otherwise known as a processing fee or transaction fee, the term interchange fee refers to the fees business owners pay on debit and credit card transactions.

Usually, these are charged as a flat fee, a percentage of each transaction, or a combination of both.

The term interchange rate typically refers to the average rate at which these fees are charged.

Rates vary depending on several factors, including the level of risk associated with the transaction.

For instance, card-present (point-of-sale) transactions, where a customer goes to a physical location and pays with a credit card in person, tend to have a lower interchange rate, as these transactions are considered less risky because they involve a PIN being entered, a signature being collected, or a chip being scanned.

Interchange rates for recurring payments tend to be lower, as well, as these transactions typically involve smaller amounts of money, and they occur repeatedly, so they’re also considered low risk.

In addition, there are specific interchange rates for non-profits and charities, as well, and these also tend to be somewhat lower.

On the other hand, card-not-present transactions, where a customer is making a purchase online or over the phone, for example, tend to be somewhat higher because they’re considered riskier.

Banks and other companies that issue the cards argue that these fees are necessary, as they help to mitigate risk, encouraging the use of these payment methods.

However, many merchants feel that these fees are artificially inflated by card issuers, and unfortunately, chances are, they’re probably not wrong.


How Are Interchange Fees Calculated?

How Are Interchange Fees Calculated

The rates at which interchange fees are calculated are set by the companies that issue the cards.

These rates are regularly adjusted based on a host of complex factors, including authorization costs, the costs of moving money around, interest rates, and the risks associated with approving payments, which include things like fraud and bad debt.

This tends to happen on an annual or semi-annual basis. For example, if they do change their rates, Visa and Mastercard tend to change them twice a year – once in the spring, and again in the fall.

The interchange fee a business owner will pay can also include literally hundreds of other smaller fees charged by multiple stakeholders aside from just the card issuers, including payment gateways, payment processors, and business owners’ banks.

At the same time, rates can also vary based on the type of business to which the fees are being charged.

Sadly, it’s the small and medium-sized businesses that usually pay the highest rates, as they don’t have the same ability to negotiate with card issuers as the big multinational corporations do.


What Is a Good Interchange Rate?

What is a Good Interchange Rate

You wouldn’t believe how often we get asked these kinds of questions by people who are desperate to find a way to avoid having to pay these inflated interchange rates.

Moreover, you’d be surprised how tough it can be to explain the reality of the situation to disgruntled business owners.

Truth be told, it can be tough to undo the damage done by unscrupulous companies that will say anything to sell their services. Sadly, this is not a new thing, either. It’s been going on for many years.

A Toronto Star article points out that when the CFIB surveyed nearly 12,000 of its members back in 2019, it asked them about their experiences with independent credit card processing providers.

Not surprisingly, nearly a third of small business owners who responded reported receiving harassing phone calls from these companies, 18 per cent said these companies misrepresented themselves, and 16 per cent said they used “deceptive sales practices”.

At any rate, the fact of the matter is, unless you’re the head of a giant corporation who has the clout to negotiate directly with those who are setting the interchange rates, you’re not going to be able to get a deal on these fees.

Trust us, we know how easy it can be to get sucked into the idea that you can get a deal on these fees, but the reality is if anyone tells you they can get you a better deal on the interchange rates, whether it’s a bank, payment processing company, or otherwise, they are simply lying.


Are you tired of dealing with dishonest payment processors making false claims that they can’t fulfill? Our mission is to do what’s best for business owners and provide absolute clarity for our customers. Contact us today and let’s get started on simplifying your payment processing.

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