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(Adds opposition politician, analyst comment)
TORONTO, Nov 4 (Reuters) - Visa Inc and MasterCard Inc voluntarily agreed to cut the fees they charge to Canadian retailers for credit transactions, the government said on Tuesday, adding it now sees no need to regulate fees set by credit card networks.
The Canadian government said the agreement, which industry sources last week confirmed was in the works, should result in lower prices for consumers.
Canadian retailers have long bemoaned the high interchange fees they pay credit card companies and banks for transactions.
Unlike American Express, which typically negotiates a flat fee with every merchant, Visa and MasterCard have variable fees based on the status of their different cards. Small retailers say this hurts them as they are never sure on whether they are going to be billed 1 or 3 percent on any given transaction.
Canada's Conservative government pledged earlier this year to promote lower credit card acceptance costs for merchants. And Finance Minister Joe Oliver said in September the government wanted credit card companies and banks to voluntarily agree to a deal.
On Tuesday Oliver said he welcomed the decision, which will trim fees to an average effective rate of 1.5 percent for the next five years, reducing overall fees by about 10 percent.
"As a result of the voluntary proposals, there is no need for the government to regulate the interchange rates," the government said, adding that Visa and MasterCard have agreed to start implementing the reductions no later than April.
The deal was panned by Canada's main opposition party, who said the move let down consumers or small businesses and noted that Canada's Competition Tribunal had specifically called on the government to regulate the fees.
"We can't allow companies to set their own disciplinary measures," New Democrat parliamentarian Annick Papillon said in a statement, dubbing the government's decision a "shameful climb-down."
Although the long anticipated fee reduction is likely to eat slightly into the bottom line of the Canadian banks, analysts expect a limited impact.
"We believe potential changes to interchange fees represent a modest but transitory headwind to the group, with a greater impact to TD and CIBC, and the least impact to Scotia and Royal (Bank)," Barclays analyst John Aiken wrote in a note to clients.
Aiken noted there are several ways the banks can mitigate the impact of the reduction, including by increasing annual fees on cards and reducing the benefits of loyalty programs.
A spokesman for Royal Bank of Canada said the bank was still assessing the impact of the changes, but was well positioned to make any adjustments required.
Shares in Aimia, operator of the Aeroplan loyalty program, had been weighed down by the prospect of a lower fee structure. But the stock rose 4.6 percent on Tuesday, suggesting investors do not see the changes crimping the popular reward program offered by certain banks on some credit cards. (Reporting by Jeffrey Hodgson and Euan Rocha; Editing by Chizu Nomiyama)