Finance Committee on March 4th, 2014

[Kurt Eby]

They have.

[Murray Rankin, NDP, Victoria, BC]

Could you speak for them in that regard?

[Kurt Eby]

I could speak broad-based.

It's not that type of idea. Fees, or even making exclusive agreements with certain credit cards being only available on certain phones is not anything that anyone has ever told me they're after. Everybody wants everything available.

I think Caroline said it best, the wireless companies want it set up so if there is a dispute, it goes to the bank, it goes to the credit card company. It doesn't come to them. It's easier to just be out of it.

[Murray Rankin, NDP, Victoria, BC]

I think you put it well when you used the expression a “dumb-pipe relationship” just a while ago, which was very poignant.

If that's the case, would you be in favour—building on Mr. Keddy's question again—of some sort of regulation? Do you see it as stifling regulation? Or if that's your position and that's going to be the position, why wouldn't we put it down in regulatory form to give comfort to those merchants that I deal with every day, who certainly have that fear?

Would the telecoms be willing to start that?

[Kurt Eby]

That's nothing that we've discussed, so I couldn't answer that question. We typically think where regulation is not necessary, we don't need to put one in place. So that would be my answer now. It's not something we've ever brought up as to whether that would be something we would support or not.

[Murray Rankin, NDP, Victoria, BC]

My next question is to Ms. Hubberstey of the Interac organization.

It seems that MasterCard and Interac are competing for business, encouraging consumers to use their product instead of Interac. Many businesses are concerned that the new Visa and MasterCard debit products could eventually transform the debit market in a way that would make it more like a credit card market. That would certainly look like MasterCard debit offering more points or bells and whistles than Interac would, and that product offering would be paid by the growing fees that merchants are charged for using their network, not by the users of the premium cards.

Is it a concern of yours that these Visa and MasterCard debit cards could take that form, and hence lead to higher fees charged to merchants, instead of the lower fees that are typically associated with Interac?

[Caroline Hubberstey]

I'll start by saying that we've always advocated for a strong, competitive marketplace, so we're not opposed to competition. Bring it on. We think we have a great value proposition to offer all of the stakeholders: issuers, acquirers, merchants, and consumers.

We understand the pain point of the merchant community, rising costs, in terms of payment acceptance. That's why we work very closely with the merchant community, because we are their low-cost option. That is the importance of having a strong domestic debit network in Canada. We've been talking for a number of years now to committees such as this and to the Department of Finance about things that can be done to ensure that there is a healthy, level, competitive playing field in Canada.

What we do is we're a mitigating force. By having our prices low, we drive prices low.

[Murray Rankin, NDP, Victoria, BC]

That's very nice, but if we have these new debit products that are created by MasterCard and Visa, and I get bells and whistles and trips to Spain and all of that, and you're left there in the dust, isn't this going to be a problem?

[Caroline Hubberstey]

Well, what the government did with the code of conduct that I mentioned in my opening comments, is it gave merchants some degree of power. One of the few jurisdictions in the world where the honour all cards rule.... You may have heard of that. If you accept a—

[Murray Rankin, NDP, Victoria, BC]

Oh boy, have I heard of it.

[Caroline Hubberstey]

What the code says is that if you accept a credit product, you don't have to accept a debit product. So it split that, which gives merchants some power to say no to an acquirer network that comes knocking at the door saying “accept our other debit product”. So that's a power they can exercise.

There are no rules today that prevent an FI from offering a competitive debit product, none whatsoever. What the code did was say that they couldn't use certain tactics to obfuscate choice, to make it unclear. At the end of the day, they're not two competing products for the same transaction type on a card if an issuer decides to issue what is called a co-batch card.

So there are steps the government has taken to help merchants in that regard.

[The Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Rankin.

We'll go now to Mr. Allen, please.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you, Chair.

Thank you to our witnesses for being here.

I'd like to start with Mr. Gaetz. I have just a couple of questions for you. You were talking about the emergence of online and mobile payments being a relatively recent phenomenon. The numbers represent a small share of your payment volumes.

Do you have the ratios of those payment volumes, where they stand today, and what the change has been over the last couple of years that you could share with the committee?

[Gerry Gaetz]

I have sort of top-of-mind volumes that I would have for e-wallet and electronic person-to-person. This is actually 2012, so it's a year back, but it's 0.1% of all of the value of the transactions.

Now this is the Canadian Payments Association picture, which is the big slice of pie, so it's very small. I think the growth number, though, was quite large, and I would be happy to get that for the committee.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

If you could, that would be great. Thank you.

[Gerry Gaetz]

But in terms of baseline, very, very low.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

If you could provide that to the committee, that would be great.

Then you talk about the security and cyber-risk, that this new threat must be well understood and better managed to protect the integrity of Canada's payment system.

What's your definition of “well understood and better managed”?

[Gerry Gaetz]

Well, it's back to that we don't necessarily know what we don't know. I'll speak of our operator role. We operate the main wholesale system and a retail system for clearing and settling between financial institutions. We do a lot to protect those from whatever risks we see, but certainly there are the security and cyber-risks.

You hardly pick up a paper each week without hearing of another either event or threat, and all of us who run aspects of the payment system know how many attempts we see to infiltrate systems every day.

So my comment was a general one. But there's a common understanding in the industry that it's a big issue that we have to—

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Okay. I have a follow-up question on that one, and this will be for maybe you and Ms. ter Haar on this one.

You are relatively new. I'm not sure how old your company is. I'm just looking at your website here. But when you look at the security and maintaining security, it must be a real challenge for you to actually get the people and the resources and the expertise it takes to actually stay ahead of this stuff.

So what kind of challenges is that providing for your organizations? As well, just as a sideline question, Ms. ter Haar, what are your transaction fees for your services?

[Amy ter Haar]

Do you want me to—

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

You can start with the transaction fees and then flip back to the resource issue, please.

[Amy ter Haar]

Our transaction fee is 1% of the transaction for those transactions above $50. We also have an advertising fee, which is 1%.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Who does that apply to?

[Amy ter Haar]

That applies to a purchase that was advertised within the Flow system. So if a merchant advertises in the Flow system, with that purchase, the advertising fee applies.

With regard to staying ahead of the security concerns and the challenges represented there, I think it's a very exciting time. There's a lot of opportunity. What we're doing is very unique and different from security authentication protocol—how you authenticate the payment, how you authenticate the user. We're doing some really exciting research and development with regard to that, and I think it's a very exciting time as we understand how to make that more secure.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Are there any other comments from any of the other panellists about getting the resources and the expertise to stay ahead of this? Obviously, it seems to me, the hackers seem to be able to stay ahead of us all the time.