Finance Committee on March 4th, 2014

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Say, for instance, I decided to join your organization. How would I know which merchants were part of this as well?

[Amy ter Haar]

You could do that in two ways. You could see at point of sale whether they accepted Flow as a payment methodology. You could also do that through your mobile application, so you would see very clearly whether they were listed as a merchant, and I can show you in the demonstration. You can do that in a number of ways by geolocating on a map or by the offers that they list or by searching, just saying the name of the merchant that you're searching for, and that would populate or not populate from a merchant perspective.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

One of the concerns—not the concerns—when we had the Visa and the MasterCard people here was that this is a free market system and we're just looking for competition. So you actually are providing another method of payment that would compete against whatever, as well as the major cards, correct?

[Amy ter Haar]

Yes. You can look at it in two ways, compete or collaborate. We like to work collaboratively with all constituents in the payment ecosystem, so it really depends on how you choose to work together or how you choose to compete. It can cut both ways.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Have you launched yet?

[Amy ter Haar]

No, we're about to.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

When are you going to launch?

[Amy ter Haar]

This year is our target year for launch.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Good for you, and congratulations.

I wanted to maybe speak to Ms. Hubberstey as well.

I think we have to make a clarification, and I think you would agree with this as well. The Interac system really isn't the same thing as a card system. In your case, the funds go directly from the purchaser to the bank, then to the merchant. There is no holding cell, for instance, as there would be in a charge system, so you're able to do this at a reduced rate. Would that be accurate?

[Caroline Hubberstey]

It is. It's a real-time good funds model. So when a customer goes to a terminal, they put the card in the terminal and do the transaction. The transaction goes through our network to the issuer and then comes back through there. So the issuer sees every transaction and it's approved by that issuer, so—

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I use it as well. I must confess that I'm somewhat trapped by the trappings of a card.

We do a lot of discussion in regard to the cost of the credit cards. Would you agree that it's really not the same thing? The cards are offering something a little bit different. Because, frankly, if I use a charge card and if I don't have the money, I have the option of paying the interest for it whereas that's not the case with the Interac.

[Caroline Hubberstey]

The pricing structure for my competitors' credit products as well as their debit products is different, and I can't speak to how they price them and how the issuers then price them. I can speak to how we price ours. At the end of the day there is one fee, a low-cost switch fee—0.6362 to a penny—and then the inquirer marks it up to the merchant, depending on the contract. A higher volume may be two cents. As I said, on average, it's about five cents.

For the value proposition in there, it is more difficult to build in something like a rewards program, although there are rewards programs that increasingly sell on debit and Interac. I'm going to sound like a Royal Bank commercial, but Royal Bank with Shoppers Drug Mart have a product that offers rewards for Interac debit, Bank of Montreal with air miles, and Scene with Scotiabank as well. So there is some value in there for issuers.

[The Chair, Conservative, James Rajotte]

You have 30 seconds.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Just very quickly, this is a question to everybody. I'm always looking for something new and I've always wondered why we talk about the phone seeming to be the place where the cards are going. Are we approaching a time where you'll be able to shop online and just have an app that would receive your credit card from your phone?

[The Chair, Conservative, James Rajotte]

Let's have one person answer that.

[Amy ter Haar]

I'll show you how in about an hour.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Van Kesteren.

We'll go to Mr. Adler, please, for five minutes.

[Mark Adler, Conservative, York Centre, ON]

Thank you very much, Mr. Chair.

I have a lot of questions, but I am very limited in my time, so I have to be very strategic about this. I'll go with Ms. Hubberstey first.

We, as legislators, are charged with the implementation of public policy. We operate on this continuum of options that we have, from voluntary at one end of the spectrum to legislation at the other end of the spectrum. The code of conduct is clearly voluntary. Credit card companies say it restricts; you're saying it encourages competition. Could you speak about that and about why you differ in that way?

[Caroline Hubberstey]

The code of conduct is really a pragmatic solution to, I think, a lot of market problems that were happening a few years ago, from disclosure by merchants to being able to understand their contracts to.... I talked earlier about the honour all cards rule between credit and debit. The way my competitors were entering into the debit marketplace was really by riding Interac's ubiquity. They put their product on the card with the financial institution logo on the front. We'd actually be facilitating the transaction, but it would look like one of their transactions.

So they would flood the market. Merchants would think they had to adopt it, and all of a sudden, they would enforce their rules. Basically each network says that you can't have competing credit products sitting on a card, so you'd never see a joint Visa and MasterCard card, but they have rules that allow them to sit on a domestic debit network. Once they reach acceptance, they kick you off the card. It's tantamount to Starbucks saying the only way it could come into Canada would be to sell coffee through Tim Hortons.

So there's nothing in the code today that restricts a bank from issuing a competitor's debit product. There are co-badged cards in the market. RBC offers a virtual debit card product, which is separate. So that's happening. It happened before the code and after it. The code dealt with some of the negative market practices that were happening and that were restricting consumer and merchant choice and being transparent about it.

[Mark Adler, Conservative, York Centre, ON]

If we move down the continuum, we're at voluntary code of conduct right now and we move towards not so voluntary but more of a legislative regime, in your opinion, how will that affect the competitive environment?

[Caroline Hubberstey]

I believe there's actually a step in between, and I think that would work, especially with mobile. I think we've all sort of alluded to it. There is a draft mobile addendum that sits with the code of conduct, which would, hopefully, address some of the issues within the mobile environment. Again, it's technology agnostic. You don't have to prescribe technology, but you can say things like, as a consumer, I should be able to set the default to whatever application I want on my phone. I should be able to move between applications. The application should be clear and clearly branded. That's the type of thing that can be covered in the mobile code.

[Mark Adler, Conservative, York Centre, ON]

Mr. Eby, clearly we must be doing something right. You had indicated earlier that here in Canada we have one of the most advanced mobile payment regimes in the world.

[Kurt Eby]

Yes.

[Mark Adler, Conservative, York Centre, ON]

So clearly we've been doing something right up until now. If we were to restrict that competitive environment by introducing more regulation into the marketplace—as the NDP wants us to do—how would that affect the competitive environment? In particular, how would that affect companies like Flow, and discourage them from getting into the marketplace with their kinds of solutions?

[The Chair, Conservative, James Rajotte]

You have one minute.