Evidence of meeting #17 for Industry, Science and Technology in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was merchants.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Kevin Stanton  President, MasterCard Canada
Andrea Cotroneo  Vice-President and Canada Region Counsel, MasterCard Canada
Tim Wilson  Head, Visa Canada
Bill Sheedy  Regional President, North America and Head of Interchange Strategy, Visa Canada

6:25 p.m.

Conservative

The Co-Chair Conservative James Rajotte

Thank you, Mr. Thibeault.

We're nearly out of time. We have one Liberal spot, and they've graciously agreed to allow me to ask a couple of questions.

6:25 p.m.

An hon. member

Let the record show....

6:25 p.m.

Conservative

The Co-Chair Conservative James Rajotte

There are a couple of things here that are still not clear. The first is that the interchange fee is set by Visa, as you state here in your documents, but it's not revenue to Visa. So why do you set a fee that you do not collect?

6:25 p.m.

Regional President, North America and Head of Interchange Strategy, Visa Canada

Bill Sheedy

Very simply, the reason we set the fee is to encourage network participation from the banks. We want banks to be active in marketing their services and signing up merchants. We want banks to be active in issuing cards and promoting cards to consumers. The interchange fee structure, in our experience, accomplishes that.

6:30 p.m.

Conservative

The Co-Chair Conservative James Rajotte

Do you understand, then, the frustration of a merchant?

For example, suppose you've got the four-party credit card model, and let's say there's $2 off a $100 purchase, just for argument's sake, and the merchant signs an agreement with the payment processor. Suppose the amount goes up. You're a smaller merchant, and the amount goes up. You're not paying $2, you're paying $2.20, so you say to the payment processor, “Why is this going up?” The payment processor says, “Well, it's actually still 50¢ out of every $100 purchase; it's actually the interchange that has gone up.” Then the merchant says, “Well, I'll talk to the bank, because the interchange goes to the bank”, and then the bank says to the merchant, “Well, no, we don't set the interchange fee; the credit card companies set the interchange fee.”

Do you see how a merchant looking at the system, which Mr. McKay said was Byzantine, will find it incredibly frustrating?

6:30 p.m.

Regional President, North America and Head of Interchange Strategy, Visa Canada

Bill Sheedy

I do see that. I think the company sees that. It's why I think we've tried to improve, just over the last year our two, our transparency on our rate structure, our rules. I think we can improve the number of resources that we put in direct contact with the merchant community. Probably the fastest-growing part of Mr. Wilson's organization is his merchant sales organization. I think we can do a host of things to clarify that while certain merchants have seen their interchange rates go up, just as many, in our view, have seen them go down, because the effective rate in the Visa Canada system has been flat. I think we can do a much better job of maintaining and managing our relationships with the merchants.

6:30 p.m.

Conservative

The Co-Chair Conservative James Rajotte

What's the rationale for having not one middle organization but two? Why would the card issuers not set the interchange if they're receiving it?

6:30 p.m.

Regional President, North America and Head of Interchange Strategy, Visa Canada

Bill Sheedy

Card issuers are one part of the payment system. They certainly are a beneficiary of interchange. As we have established, it flows to them, but we have other constituencies here in the merchants and the acquirers, and if the interchange rates aren't set with those perspectives in mind, what we'd find is an imbalance in the system.

I've spent a lot of time with issuers and a lot of time with merchants and acquirers. If you set rates just from an issuing perspective, you might set them too high to meet short-term profit objectives, and then you'd reduce the merchant value proposition and you wouldn't be able to expand acceptance. At the end of the day, we think that the output from the network would be reduced.

6:30 p.m.

Conservative

The Co-Chair Conservative James Rajotte

This model here shows the 50¢ going to the payment processor, so you have $1.50 out of a $100 purchase going to the card issuer, but it does not show the fees going to the credit card company. What are those fees, typically? How much are they? Can you describe them for us so that we get a sense of how much of those fees in fact go out of that system, out of the interchange, and back to the credit card company? Can you outline what the fees are, in detail?

6:30 p.m.

Regional President, North America and Head of Interchange Strategy, Visa Canada

Bill Sheedy

I can speak generally. We have announced and made illustrations publicly, as my colleague mentioned. We do have some restrictions in that our fee structures are confidential with our clients, but in investor presentations we have described how that works generally.

For every transaction that comes through the network, two to three cents will come to Visa for the services we provide--authorization, clearing, and settlement--in moving the money of that transaction. Then there are a few basis points, a small percentage of every transaction, that we will charge to our issuers and to the acquirers for participation in the payment system. A small number of cents and a small number of basis points for the licensing fees would be what's typical for our clients. That's not just a Canada example; it's fairly consistent with what we'd see globally.

6:30 p.m.

Head, Visa Canada

Tim Wilson

I think the one point I'd tack on to that is that all these fees, in aggregate, work out to be a fraction of what interchange is on any given transaction.

6:30 p.m.

Conservative

The Co-Chair Conservative James Rajotte

What would it be, typically?

6:30 p.m.

Regional President, North America and Head of Interchange Strategy, Visa Canada

Bill Sheedy

Typically, it would be less than 10%.

6:30 p.m.

Conservative

The Co-Chair Conservative James Rajotte

Less than 10% of the interchange or less than 10% of...?

6:30 p.m.

Regional President, North America and Head of Interchange Strategy, Visa Canada

Bill Sheedy

It would be less than 10% of the interchange.

6:30 p.m.

Conservative

The Co-Chair Conservative James Rajotte

Okay.

Well, my clerk is telling me that I'm out of time.

I want to thank you for coming before us, for your presentation, and for your answers to our questions. This study may in fact continue, because there are a lot of questions still out there.

Members, thank you for your participation.

The meeting is adjourned.