Update for Small Business Matters Coalition

CREDIT CARD FEES:

• The SBM Coalition alone, opposed the ‘solution’ to high credit card fees brought forward by the previous government. The voluntary reduction, ostensibly to an overall average of 1.5%, we said was not meaningful. (This view was shared by Nesbitt Burns.) Upon the election of a new government, the SBM Coalition, again alone, pushed for a renewed look at this issue, focusing our efforts at the Minister of Small Business, Bardish Chagger. The position of the coalition with respect to setting a fair rate, is that we have said the rate is 0.3% and 0.5% in jurisdictions such as the EU, UK and Australia. So we said that the government needs to explain to us, so that we in turn can explain to our members, why the rate in Canada needs to be significantly higher.
• The previous government said that Visa and MasterCard would have their reductions audited. As it turns out, they do their own audits. Last September, they released a statement saying they had conducted their own audits and it showed they were basically meeting the commitment to reduce rates overall to 1.5%.
• The Coalition pointed out that many of their members were still not seeing those rates, and included in the “audits” were the special deals available to Costco and other large chains. Rates that small businesses could not obtain. We sent out news release, wrote to MP’s and Ministers, held meetings with Finance Dept and Ministers. The government announced it would launch a new review of the payments network. Other associations such as RCC became reengaged on the issue.
• SBM Coalition continues to treat this issue as a priority and awaits the completion of the review to determine our next steps.
• The Minister of Finance has not met with any stakeholders during the review period. However, he did meet with the SBM Coalition.

NAFTA:

• The SBM coalition wrote to the Minister of Finance expressing concern that if there was a change in the di minimis level in the context of NAFTA negotiations, from the current $20 duty free, to the $800 the United States was demanding—that this would provide a huge competitive advantage to e-commerce giants such as Amazon. Conversely, SME’s in Canada invest in the bricks and mortar of physical store locations, pay taxes, hire local, etc. If there is a NAFTA deal, the SBM Coalition has been invited to submit a nominee for the SME Advisory Board on NAFTA. If NAFTA ends up being scrapped, then Canada and the United States will certainly then negotiate a bi-lateral trade deal. Hence the di minimis issue will remain an issue. This is of more importance for some SBM coalition members, depending on the sector.

REGULATORY REFORM:

• The federal and provincial governments have together decided to reduce interprovincial regulatory burdens. In other words, eliminate regulations that could be barriers to business and also to interprovincial trade. The SBM Coalition was invited to a meeting, along with the Canadian Chamber of Commerce and CFIB, with Treasury Board President Scott Brison, this past summer. The viewpoint expressed by SBM was that the government should also look at simplifying the language around existing regulations, as well as taking a sectoral approach to consultations on this issue. Again, for example, a regulation of concern to CFIG, may be less so to CIPMA. So the government should engage with each sector individually.

TAX REFORM:

• The current government campaigned on ‘tax fairness’ and indicated they would review the tax regime for small businesses to determine if it was helping genuine small businesses and they wanted a system that was “fair and transparent.” The Liberals also indicated they would reduce small business taxes to 9%.
• The government released proposals as part of the promised review this past summer. The communications strategy and rollout was poorly managed.  This helped others shape the narrative around the proposals and by September, generating blowback from various groups, but also within the Liberal caucus as well.
• While many groups were lighting their hair on fire, as the saying goes, about the proposals, the SBM Coalition took a more nuanced approach. Recognizing the government was looking for a way to back down, we came out in support of the principles of fairness and transparency—but indicated income sprinkling was important to our members and raised concerns that succession planning and passive investment should not in any way impact our small business members. As well, SBM used our more moderate approach publicly, to push for the small business tax reduction.
• The government subsequently backed down on most of the reform proposals and announced a small business tax reduction, which we had been pushing. This was why the SBM was invited to join the Prime Minister at the announcement. We are still awaiting the revised language around the passive investment issue and income sprinkling. When received, we will circulate that to Coalition members who should be encouraged to share with their respective members.

                              CREDIT CARD FEES—BACKGROUNDER AND Q&A

 Q: The previous government solved the issue of high interchange fees in Canada. Why is this still an issue?

 A: The ‘solution’ provided by the previous government was not a meaningful reduction. In other jurisdictions, the rates are significantly lower than Canada’s. The EU and the UK have rates of 0.3%. No one has provided us with an explanation of why the rates need to be so much higher in Canada. The voluntary agreement to reduce fees to an overall average of 1.5% was even deemed by financial analyst Nesbitt Burns as having “no positive impact” and that they had expected a rate reduction of at least 15%.

Q:The percentages being talked about, such as 1.5%, does not seem like a lot. Why is that such an issue for retailers and merchants?

A: The rates in Canada are among the highest in the world. According to the Competition Bureau, these fees amount to between $5 and $7 billion that is taken in by credit card companies out of the economy annually in Canada. The Bureau also pointed out that these fees have a disproportionately deeper impact on small and medium size businesses. The money that could be saved by reducing interchange fees could be used for businesses to hire more people, reinvest in their businesses, and help provide more price stability.

Q:The credit card companies said they have audited their reductions and it shows that they have met the commitment to reduce rates to an overall average of 1.5%.

A: Both Visa and MasterCard audited themselves, and did not release those audits. As well, include in the overall reduction, were the one-off deals that both Visa and MasterCard have made with larger businesses, such as Costco. Those rate deals were incorporated into the overall rate reductions. So again, small business is subsidizing rate reductions being reported by Visa and MasterCard.

Q: Visa and Walmart came to an agreement earlier this year to reduce fees. Why can’t small businesses just do the same?

A: There is not a small business in Canada that has the leverage of Walmart, an international retail giant. Walmart began refusing to accept Visa cards from customers to force Visa into providing a lower rate. A small business in Canada cannot afford to accept credit cards in today’s marketplace. As well, Visa ran full page ads last year indicating that they could not provide Walmart with a lower rate, as that would put small businesses at a competitive disadvantage. But Visa ended up making a deal with Walmart, providing them with a rate below 0.90%—so by their own admission, small businesses in Canada are in a competitive disadvantage. The other thing to bear in mind, is that the card companies told the previous government that 1.5% was the best they could do. It appears from MasterCard’s deal with Costco and Visa’s deal with Walmart, that this was simply not true.

Q: The CFIB said it had negotiated a rate of 1.26% with MasterCard. Doesn’t that show that small businesses can negotiate good deals?

A: Both Visa and MasterCard have actually offered lower rates to other sectors, as the result of pressure from groups like the Small Business Matters Coalition. Independent grocers, convenience stores, gas stations, etc. were promised lower rates than those touted by CFIB. But it matters not what they say the rate is, it matters only what the rate is. Most businesses in these sectors are not seeing those promised reductions, largely due to the prevalence of higher end premium cards, which provide more “bells and whistles” for the consumer, but carry higher rates for the retailer. Some associations, such as CFIG, have also been tracking member rates, and no one in their membership has yet hit the promised target of 1.22% from MasterCard and 1.23% from Visa. As well, the United Grocers Inc., an independent buying group composed of members such as Couche-Tard, Metro, Save-on-Foods, London Drugs and others—asked for a better interchange rate from Visa that was at or below .90% so that they were close to the Walmart rate. UGI was turned down by Visa. So what chance would a small business have?

Q: The credit card companies have made lots of investment in Canada in technology and innovation. Doesn’t that help all retailers?

A: The credit card companies may have made investments in technology, but the merchant community is the one that is paying for those expenditures. Period. $5 to $7 billion a year is a lot of money that small and medium size businesses could also be using to make investments.

Q: What rate does the Coalition believe should be set in Canada?

A: The Coalition has never put forward a specific rate. Our view is that the rate is significantly lower in other jurisdictions, so we have asked for the card companies and the government help us to understand why that is the case and why the rates cannot be lower here in Canada. We in turn, armed with that explanation, could share it with our respective members. But we have yet to receive that explanation.