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

4:25 p.m.

President, MasterCard Canada

Kevin Stanton

I'm very afraid that outside of making sure that the competitive laws of Canada are working and that competition is governing behaviour, this will result in unintended effects, specifically a reduction in competition and an exiting of the market by small players, creating barriers to entry and those sorts of thing. However, I do think a regime that's targeted at making sure merchants fully understand the contracts and costs associated with accepting all sorts of card-based payments is a very important component of the scene that's missing right now.

4:25 p.m.

Conservative

The Co-Chair James Rajotte

Merci, monsieur Bernier.

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

May 14th, 2009 / 4:25 p.m.

Liberal

John McKay Scarborough—Guildwood, ON

Thank you, Chair.

Mr. Stanton, what has precipitated these hearings is some pretty unilateral action on the part of your company and Visa in hiking rates in economically difficult times, when margins and business activity are shrinking. You couldn't have picked a worse time to hike rates. I have a document here prepared by a who's who of retail merchants in Canada. It says that in October, rates for electronic cards were 1.68%, as they were for standard cards. Then it gives a breakdown of post-October rates, and it says that Visa and MasterCard have since averaged increases of 11.5% and as high as 17%.

You can appreciate that when a hotel merchant or gasoline merchant who is on a fixed margin has increases such as these in a very short period of time, and over which he has no ability to respond, it's going to get his attention. What do you say to these folks?

4:25 p.m.

President, MasterCard Canada

Kevin Stanton

I think there's no doubt there has been a reaction to end-user pricing. I think that's an understatement. But as I mentioned to Mr. Thibeault, some of the numbers we heard mentioned yesterday were surprising, because they don't bear relation to the increases we put in place.

In terms of the timing, I agree the timing is unfortunate, but the timing is not from this year. It take six months to put something in place; it takes six months to give notice and a few months for technology to change. So these are changes that were started in 2007. So it was well before the current economic times arose.

4:25 p.m.

Liberal

John McKay Scarborough—Guildwood, ON

Did you give notice to your merchants that during the term of their contract, increases such as this would take place?

4:25 p.m.

President, MasterCard Canada

Kevin Stanton

Well, we don't give notice to the merchants, but we always give at least six months' notice to the acquirers, who then turn around and give what notice they're required to give to the merchants.

4:25 p.m.

Liberal

John McKay Scarborough—Guildwood, ON

Do they actually do that?

4:25 p.m.

President, MasterCard Canada

Kevin Stanton

Well, their contracts generally do.

Maybe Andrea could speak to that, because—

4:25 p.m.

Liberal

John McKay Scarborough—Guildwood, ON

I'm surprised by that, because the merchants who have come to us have been rather staggered by their increases. I remember one set of people representing retail gas stations whose margins were 6%, and with your increases, their margins are down to 4%. It's a pretty substantial increase, wouldn't you agree?

4:25 p.m.

President, MasterCard Canada

Kevin Stanton

Our gas rate went down.

4:25 p.m.

Liberal

John McKay Scarborough—Guildwood, ON

It went down?

4:25 p.m.

President, MasterCard Canada

Kevin Stanton

It went from 145 to 136.

4:25 p.m.

Liberal

John McKay Scarborough—Guildwood, ON

Well, there is a distinction between premium cards and other cards. The irony here is that you have this honour-all-cards rule. When I, as a consumer, am presenting a premium card, I don't really understand that the merchant is paying the difference. Here you are on the one side promoting the premium cards because that's a better deal for you folks, and on the other hand, the consumer, in blissful ignorance, and the merchant, who has no choice, get stiffed with these cards.

So while your market penetration on the premium cards may actually be only 5% at this point, you're not introducing these things for that to remain at 5% for the next two, three, or four years; you want a far higher penetration rate of the premium cards, and the merchant has no choice.

Am I wrong about that?

4:30 p.m.

President, MasterCard Canada

Kevin Stanton

The honour-all-cards rule requires a merchant to accept all cards. I have two points on that.

Paul Jewer from Sobeys, in his testimony, said that some sort of compromise on the honour-all-cards rule wouldn't work for merchants either. If they advertise that they accept a certain type of card, like Interac, American Express, Visa, or MasterCard, to surprise the customer with the fact that they won't accept that type isn't workable in an operating environment.

For the consumer it creates an untenable situation. We rigorously enforce the honour-all-cards rule. Some Canadians were being differentially treated in the United States at gas stations because of some technical glitches we had to work through. We've had situations where Canadians working abroad have been told that Canadian cards weren't accepted. Underlying any sort of payment system where there isn't inherent value in the vehicle--cash, Interac, American Express, Visa--the card itself has no inherent value.

4:30 p.m.

Liberal

John McKay Scarborough—Guildwood, ON

I had the same experience travelling abroad. My card was not accepted. This system is pretty broken.