Evidence of meeting #27 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was fees.
A recording is available from Parliament.
4:50 p.m.
Conservative
The Co-Chair Conservative Michael Chong
Thank you, Madam Swift.
I think Madam Brisebois has something to add.
4:50 p.m.
President and Chief Executive Officer, Retail Council of Canada
Yes, I'd like to add to the question.
I'm a bit concerned that we're talking about transparency here, believing that it is going to solve all the problem. While our banks are indeed chartered Canadian banks, Visa and MasterCard are not Canadian companies, and in fact have made an art form of ensuring that even if you think you are getting transparency, you're not.
Let's be clear: they represent 94% of the market. They are, in fact, controlling the market. They do understand and promote the use of credit cards in establishments, so it's extremely difficult to walk away from this, or to assume that you can invite Visa and MasterCard before the committee on a regular basis so they can behave.
At the end of the day, they are charging, and will continue to charge, unless there are regulations in place.
4:55 p.m.
NDP
Glenn Thibeault NDP Sudbury, ON
I'll jump in right where I left off earlier. I had a question specifically for the two people from the restaurant association.
We were talking a lot about Main Street and the small and local businesses in our community. In your opinion, what kind of impact will the unfettered, unregulated, credit card interchange fees have on the restaurant business, because I know the margin there is so small, because of rising prices and restaurants having no choice in changing those prices? Can you expand on that a little bit for me?
4:55 p.m.
Chairman of the Board of Directors, Canadian Restaurant and Foodservices Association
It will have a dramatic effect on the restaurant industry because our margins are so thin or low, particularly in Newfoundland. The rate I'm paying for Visa and MasterCard is higher than the average profit margin in Newfoundland.
I actually brought all of my stuff. I have my merchant agreement, statements, and the whole thing. They are charging my particular little business 15 different rates. Not a single one of them is the rate I negotiated. So it's really hard for restaurants to keep up with that—though on my part, I am involved and am keeping up with it. But most operators are working in their restaurants; they don't have time to be working in their offices. They're out with their customers or they're out trying to grow their business. A lot of times they are front-of-house people and not necessarily back-of-house people; this is creeping up on them and they're not getting time to react until it's too late, and then they're out of business.
These are real jobs all over Canada. We're in every community in Canada. We're the backbone of most small towns and we are big employers, and it's having a dramatic effect on our industry.
4:55 p.m.
NDP
Glenn Thibeault NDP Sudbury, ON
I'm going to make up a number here. So if it's a dollar you'd be making off one of these and you're actually having to pay out 60¢, that ultimately impacts whether or not you can expand your business and hire more people.
4:55 p.m.
Chairman of the Board of Directors, Canadian Restaurant and Foodservices Association
Exactly. It all works out to be dollars and cents and labour, because we only have two choices or things we can control in our industry: the cost of our goods sold, and our labour costs, generally speaking. Labour costs are getting harder and harder to manage every day, with increased minimum wages and labour shortages and everything else. And then you have the cost of your goods sold and the price of gas, and commodity prices are going through the roof. We just can't keep up with it. Ten years ago, when I joined this association, the profit margin in Canada was 10% in our industry. Today it's 3.2%.
4:55 p.m.
NDP
Glenn Thibeault NDP Sudbury, ON
So keeping that in mind, what do you feel would be a fair interchange fee? How do you see us implementing that?
I'll open this up to everyone, but I'll let you answer first.
4:55 p.m.
Chairman of the Board of Directors, Canadian Restaurant and Foodservices Association
For the volume of sales that we do, I would think that somewhere around 1.5% is a fair interchange fee. It's no hassle to them; we process it and look after all the paperwork. It's all transfer money; there's no one touching money.
Based on the volume we do, our industry is something like a $454 billion industry in Canada. The amount we process in my restaurant alone is 71%. I can only imagine that in a lot of restaurants, particularly in fine dining, it's more like 95% or 98%. For caterers it's basically 100%. So we're their biggest customers.
4:55 p.m.
Public Affairs Director , Association des détaillants en alimentation du Québec, Coalition québécoise sur les hausses de frais de transaction de carte de crédit et de débit
It's hard for me to answer because I don't know the system costs. Costs are currently very well put together. The credit card companies, the card issuers and all the businesses that bill us fees... We have final costs. We're billed a rate or an amount that we have to pay on an invoice and we receive very little explanation.
You ask me what their profit margin is. I can't tell you. It's normal for those companies to make profits, but we want to make some too. The example cited earlier is fairly clear. If our payment rate on a credit card is higher than our profit margin on a product, we might as well shut down. I don't understand how you can let that go.
4:55 p.m.
Senior Vice-President, Trade and Business Development, Canadian Council of Grocery Distributors
Mr. Chair, I'd answer Mr. Thibeault's question very directly. We propose that the Australian model offers guidance in this. We've indicated that transaction costs plus a fair rate of return should be what that interchange fee looks like. We believe we need to understand what goes into those transaction costs, and that equation really becomes what a fair fee is.
It's not a multiplicity of charges. It's not a range. To ask us to sit here and sort of guess, if you will, is not what we're coming to do. We're not here to negotiate a fee. We're saying we need a new system and a system that is based on the actual cost plus a fair return, as has been done in other jurisdictions.
5 p.m.
Conservative
Bob Dechert Conservative Mississauga—Erindale, ON
Thank you, Mr. Chair.
Thank you, ladies and gentlemen, for your remarks this afternoon. I know in the past a key element to the success of our economy has been a strong retail sector and a consumer-led economy. I certainly know that as we recover from our current economic challenges, we don't want to do anything to dampen the enthusiasm of consumers to spend and to grow our economy.
In representing a place like Mississauga, I also know how important small business is to all Canadians, including new Canadians, who often start small retail businesses as a way of making a start in this country. Can you tell me if your members are restricted under their contract with the credit card companies from disclosing the fees they pay to the credit card companies? Can you describe that for me?
5 p.m.
President and Chief Executive Officer, Retail Council of Canada
In fact, yes. If a retailer signs a contract with the processor to accept either Visa or MasterCard, the contract itself is very specific. They cannot inform the consumer of the fee they're paying to accept a card. They cannot encourage the consumer to change the card, in fact, to sway them to another product.
The only thing a merchant can do—and it was mentioned earlier on and it's fairly new, as Catherine mentioned—is they can provide a discount on cash. Once they've signed a contract, they have to accept all the cards that are presented under that brand.
5 p.m.
Conservative
Bob Dechert Conservative Mississauga—Erindale, ON
Can they advertise that they have a cash price, as opposed to a credit card price?
They can't advertise that, but they could offer it if the customer requests it. You also mentioned that the debit card system was actually a good form of payment mechanism for your retailers. If that's the case, why don't you want more competition in debit card provision? Wouldn't it be a good thing for more consumers to have the ability to use debit?
5 p.m.
President and Chief Executive Officer, Retail Council of Canada
It's a great question, and thank you.
In fact, all merchants will tell you they always welcome more competition because it means more choice. This is where I think it's important to understand that there's no competition. If Visa and MasterCard enter the debit market, they will be in the business of trying to attract issuers to their brand. The only way they can do that is by providing a higher incentive.
It is a strange world when we believe that more competition in the debit market means higher fees. The only way, as a bank, that I will decide to issue your Visa card versus Interac, is if you give me 15 cents instead of 10 cents. It's not competition. It's competition between the networks, but it's not competition in real terms. It simply means it will cost more money versus less money, which has a huge impact on merchant business in Canada.
5 p.m.
Conservative
The Co-Chair Conservative Michael Chong
Thank you.
I think Madam Swift has a comment, and then we'll go to Mr. Taylor.
5 p.m.
President and Chief Executive Officer, Canadian Federation of Independent Business
Thank you.
I just wanted to get back to the first issue you raised there, about cash discounts and all that.
There's also a practice that's referred to as “surcharging”, which is when you use a Visa or whatever, it's another 1.5% on top of your bill. That currently is not permitted, but interestingly, it has been in some other markets. It has been in Australia, for example—we keep bringing up that example—and interestingly enough, it didn't really work because merchants didn't want do it because they were seen as the bad guys by the consumer. Even if that's proposed to you as some kind of mollifying measure, don't buy into it that easily, because, as I said, experience we've seen has not suggested that that was good.
About the competition issue, I think what's important is that we need collectively to define, for Canada, the terms of debit in Canada. What is the best model for us? Yes, competition is good, but what we've seen if we're looking at what happens in other nations with Visa and MasterCard is this. In the U.S., it was very different. They never had a national debit system like we have. So Visa could come in and offer a national system, whereas that is not applicable to the Canadian model.
That's where we need to do our fact-finding, find out what's best for Canada. We may well say, sure, let her rip, but you can't go to the ad valorem pricing. Certain terms have to apply.
5:05 p.m.
Vice-President, Labour and Taxation, Canadian Restaurant and Foodservices Association
I just wanted to comment on the idea of competition. Currently, when consumers choose which method of payment to use, they choose the one that gives them the most benefits. So we currently have an Interac system that's very low cost and no frills, and if Visa and MasterCard introduce a system where now suddenly you get aeroplan points and all kinds of goodies every time you use their debit product, it'll be very difficult for an existing low-cost system to compete when the merchants are the ones footing the bills for these bells and whistles.
5:05 p.m.
Conservative