Canadian banks benefit from the Competition Tribunal’s dismissal of a case last week against major credit card firms, MasterCard Inc. and Visa Inc., says Moody’s Investors Service. However, it notes that their card fee revenue may yet come under pressure from regulatory action.

In a new report, the rating agency says that case’s dismissal is credit positive for the Canadian banks, as they stood to lose card revenues if the complaint had been upheld. “If the case had been upheld, retailers would have gained the ability to impose surcharges, for example, on premium cards that carry higher fees,” it notes, adding that the introduction of a similar reform in Australia in 2003 gradually led to widespread surcharging.

Moody’s says that, in Australia, more than half of large retailers applied a surcharge on at least one of the credit cards they accepted by 2012, which drove payment volumes to other methods such as debit cards. “The ability to apply a surcharge also gave retailers leverage to negotiate lower interchange fees, and average merchant fees per transaction on MasterCard’s and Visa’s networks declined to 0.8% from 1.4% since the introduction of the reforms in Australia,” it says.

Currently, Canadian merchants pay more than $5 billion every year in credit card acceptance fees, Moody’s says, and the interchange fees retained by the banks represent more than 80% of these fees in Canada, it says, citing the Commissioner of Competition. “Interchange fees have increased significantly following the introduction of premium credit cards by MasterCard and Visa in 2008. Customers pay a higher annual fee for premium cards to earn incentives such as free travel, which are essentially funded by interchange fees,” it notes.

“The dismissal of the case against the credit card firms, which was filed by Canada’s Commissioner of Competition in 2010, “contrasts with other actions globally” to cap interchange fees.

However, it notes that the tribunal suggested that the concerns raised in the complaint should be addressed through the regulatory framework. As a result, Moody’s says that it thinks that it is likely that there may be regulatory initiatives that ultimately still lead to a reduction in interchange revenues for Canadian banks.