On November 4, 2014, Canada’s Minister of Finance, Joe Oliver, announced that Visa Canada Corporation and MasterCard Canada, Inc. had submitted separate and individual voluntary proposals to reduce their net consumer credit card interchange rates to an average effective rate of 1.50% for a period of 5 years. Visa and MasterCard have committed to start implementing the reductions no later than April 30, 2015.

All merchants are expected to see a reduction in interchange rates, however both Visa and MasterCard have committed to focus on delivering reductions to small merchant categories and charities.

A Response to Threatened Industry Regulation

Visa and MasterCard submitted these proposals in response to the increasing pressure merchant associations, consumer protection groups and the Competition Bureau were placing on the Department of Finance to regulate Canadian credit card networks’ interchange rates. The proposals have successfully averted regulation for the time being. The Minister of Finance stated that “as a result of the voluntary proposals, there is no need for the Government to regulate the interchange rates set by the credit card networks”.

The Ministry of Finance will be monitoring Visa and MasterCard to ensure they comply with their proposals. Such monitoring will include annual reviews by an independent third party. The Ministry of Finance expects other credit card networks that may exert market power in Canada to voluntarily commit to reduce their interchange rates as well. The Minister warned that, in the event the interchange rate reductions are not passed on to merchants, the Government may rescind its acceptance of the proposals. The possibility of government regulation therefore remains if the proposals are not ultimately successful in reducing and maintaining low prices for consumers. 

Visa and MasterCard have also indicated that their proposals are conditional. MasterCard noted that its proposal was based on the current regulatory structure and that it may need to adapt with changes in the industry. Visa indicated that it would terminate or amend its proposal if it or its clients were disadvantaged by it.

Merchant Acquirers’ Role and Future Amendments to the Code of Conduct for the Credit and Debit Industry

Both Visa and MasterCard emphasized that merchant acquirers must pass the interchange rate reductions onto merchants in order for the reductions to achieve their purpose. Visa indicated that it supports an amendment to the Code of Conduct for the Credit and Debit Industry which would require merchant acquirers to reduce their merchant discount rates by at least the same amount as the interchange rate reductions. In his announcement the Minister stated that the Government is examining potential changes to the Code of Conduct which it hoped to announce in the near future.