Guidance on Credit Card Interchange Fees

August 6, 2015 – As CAPACOA reported in November, Visa and Mastercard have come to a voluntary agreement with the Government of Canada for the reduction of interchange fees. The new rates took effect on April 1, 2015. Have you been taking advantage of them?

MasterCard and VISA logosThis voluntary agreement includes steeper reductions for charities. However, it wasn't clear until recently whether nonprofits would benefit from the same steeper reductions as charities. CAPACOA sought clarifications with both Visa and Mastercard and the quick answer is yes. Here are the respective positions of Visa and MasterCard.

Visa included charities within its "emerging segments" merchant category. Since April 1, the new interchange fees are 0.98% for transactions using Classic, Gold, or Platinum cards (a 40% reduction), 1.17% for transactions using Infinite cards (a 35% reduction), and 1.95% for transactions involving Visa Infinite Privilege cards (a 25% reduction). Visa's emerging segment interchange rate structure references the following MCC definition for charitable and social-service organizations: "Merchants classified under this MCC are non-political fund-raising organizations (organizations engaged in soliciting contributions) and social service organizations engaged in social welfare services. This MCC includes advocacy groups, community organizations, and health agencies." Visa refers to the Canada Revenue Agency’s guidance for tax-exempt status to determine when this MCC rightly applies to a non-profit entity. Where a non-profit organization qualifies as tax-exempt under CRA guidelines, the above MCC – and therefore emerging segment interchange rates – are generally available to them.

MasterCard created a new interchange program for charities (MCC 8398). Since April 1, the interchange fees that MasterCard charges charities fell to between 1.0% and 1.5%. This represents, in effect, an almost 40% reduction in these fees for charities. MasterCard as a network does not make a distinction between non-profit and charitable organizations. Those non-profits interested in qualifying for the charity rate are encouraged to have a conversation with their acquirer, as the MCC code an organization is assigned is determined between the organization and its acquirer, not by the network.

How can nonprofits take advantage of the steeper reductions?

Do you have a merchant account with an acquirer/payment processor (i.e. Global Payments, Moneris, Chase Paymentech, etc.) to accept direct credit card payments? If so, it is incumbant upon you to contact your acquirer, verify you Merchant Category Code (MCC), and – if needed – request that the code be changed to MCC 8398 – charitable and social-service organizations. Your acquirer should normally proceed to the change promptly. If they don't, the Government released on April 13 an enhanced Code of Conduct for the Credit and Debit Card Industry in Canada to extend its provisions to mobile payments and introduce new fee disclosure, dispute resolution mechanism, and branding requirements. This enhanced Code of Conduct gives merchants added flexibility to cancel their contracts without penalty and limits the automatic renewal of contracts that no longer meet the merchant's needs.

If you do not have your own merchant account – you are accepting credit card payments through a ticketing provider or through Paypal – you will likely not be able to benefit from the steeper reductions for charities. You should however indirectly benefit from the normal reductions provided to all other merchants as part of the voluntary agreement (on average, these fees for all merchants will now be reduced to 1.5% of the transaction value). For more information, you should contact your ticketing provider.

 

 

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