Canadian Finance Minister Joe Oliver is pressing credit-card companies and banks to accept lower transaction fees paid by retailers, which the government claims are among the highest in the world, according to two people familiar with the talks.
The government, which flagged the issue in its 2014 budget, wants MasterCard Inc. and Visa Inc. to voluntarily curb fees by about 10 percent, said one person, speaking on condition they not be identified because the talks aren't public. The fees are set by the payment networks though the bulk of the revenue is passed on to Canadian banks.
The cuts would lead to lower costs for retailers and threatens to erode revenue for credit-card firms and lenders including Bank of Montreal and Royal Bank of Canada. Banks say any efforts to cut transaction fees may force them to reduce card-holder benefits or eliminate cards.
"The tools that you have are to reduce benefits to consumers, to remove cards from the marketplace because they're no longer profitable," Royal Bank Chief Executive Officer David McKay said yesterday at a banking conference. "Every bank is going to have a lot of unhappy customers."
Officials from the two U.S.-based payments companies have held talks with the government in Toronto and an accord could be reached as early as this month, said two of the people. Oliver is reluctant to impose regulations and wants an industry-led solution, the people said.
Paul Cohen, a spokesman for San Francisco-based Visa, and Seth Eisen, a spokesman for Purchase, New York-based MasterCard, declined to comment.
Nicholas Bergamini, a spokesman for Oliver, said the finance department doesn't have anything to add beyond what was in the budget.
"The government will work with stakeholders to promote fair and transparent practices and to help lower credit-card acceptance costs for merchants, while encouraging merchants to lower prices to consumers," he said.
A voluntary pact would cover the bulk of credit-card payments in Canada.
Canada's card issuers, which include banks and credit unions, receive what's called an "interchange fee" that's passed along by the card companies. While the card networks set the fees, they don't profit directly from interchange. The lenders use the revenue from those fees to pay for loyalty programs and cover credit-card losses.
"For the banks it is a great business that will get marginally less great," National Bank Financial analyst Peter Routledge said in a Sept. 2 interview.
CIBC spokesman Kevin Dove didn't immediately provide comment. Scotiabank spokeswoman Diane Flanagan didn't immediately respond to phone and email messages seeking comment. E-mail and phone messages left with Alicia Johnston at Toronto- Dominion Bank weren't immediately returned.
Another sticking point is how MasterCard and Visa coordinate any reductions, given that MasterCard typically charges a higher fee, one person said. Among the banks, Bank of Montreal gets the most fees from MasterCard. Bank of Montreal spokesman Paul Deegan declined to comment.
The Canadian government pledged in its budget to take additional measures to lower card fees for merchants. The matter has been under study by lawmakers and Canada's competition bureau for years, amid pressure from Canadian retailers.
Canada's competition bureau sued Visa and MasterCard in 2010 over rules that don't allow merchants to encourage shoppers to use cheaper payment options, and prevent them from applying a surcharge on higher-cost cards. A tribunal dismissed the case last year and said a "proper solution" to the watchdog's concerns is a regulatory framework.
Canada has among the highest card acceptance fees in the world, almost twice as high as Europe, the bureau claimed.
Visa and MasterCard have battled for years with merchants over swipe fees in countries around the world including the U.S. The biggest networks in July lost their bid to dismiss more than 30 lawsuits by retailers including Target Corp. and Macy's Inc., which are seeking potentially billions of dollars in damages related to fees for processing transactions. Merchants have sued networks for allegedly conspiring with banks to fix swipe fees, which are charged to businesses when consumers pay with credit or debit cards.