On November 4, 2014, the federal government announced a voluntary agreement with MasterCard and Visa to reduce interchange fees to an average of 1.50% of the transaction value. An interchange fee refers to a charge paid by merchants when they process payments by credit card. For charities accepting funds by credit card, the reduction is promised to be even greater. This significant development is in response to continuous work from the charitable sector, specifically Imagine Canada. This initiative reflects the greater work being done with regard to credit card companies and the charitable sector, including the introduction of Bill S-202 in the Senate, which proposes even further regulation and reduced fees. For more information on Bill S-202, see “Bill S-202 Could Eliminate Credit Card Acceptance Fees for Charities” by Ryan M. Prendergast in the October 2013 Charity Law Update.

A significant benefit for charities

The voluntary agreement takes effect April 1, 2015 and will continue for five years. In the case of MasterCard, a new merchant category for charities will allow for an almost 40% reduction in interchange fees. This means interchange fees will fall between 1.0% and 1.5%, as compared to current rates of 1.59% to 2.65%. Visa, rather than creating a completely new merchant category, will include charities in its “emerging segments” category, which means charities’ interchange fees will vary between .98% and 1.95%, depending on the Visa card used.

These developments will significantly benefit charities by increasing donations received and lowering administrative costs. The latter is especially important for charities because, unlike traditional merchants and their customers, the administrative costs of charitable donation are not passed to donors. Oftentimes such hidden costs result in a lack of transparency regarding credit cards and donations. However, these hidden costs go unnoticed, in part, because tax credits are based on the total donation, even though the charity loses out on a portion of credit card donations because of the administrative cost of interchange fees. Reduced interchange fees will result in donors and people who purchase goods or services from registered charities having a greater impact on charitable causes. The charitable sector will no doubt be encouraged by this progress and feel optimistic about further work with credit card companies, such as addressing other previously identified issues like the elimination of surcharges for “card not present” transactions.