Industry Committee on Nov. 2nd, 2011

[David Robinson]

Oh, okay. It wouldn't work, so....

I don't understand the question, obviously.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

If we used a different SIM card and we were dependent on our phone wallet and we were in another country, we couldn't use our phone wallet in that country to make payments.

[David Robinson]

Oh, I see: you have your phone number in your SIM and you have all your cards in your SIM and you go to another country with which we don't have a roaming agreement, and so you can't use your phone and therefore can't use your wallet.

Is that what you're getting at?

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Yes, that's my question.

[David Robinson]

I don't know how many countries we don't roam with. I think it's a fairly small number of countries.

Whereas I do believe a mobile wallet is certainly going to be a reality in a very near period of time, I don't believe for a moment that it's going to replace plastics. The card on your phone is usually a version or a copy, as it were, of your physical card. So the likelihood is that a customer who went to a country where for some strange reason there was not cellphone service that we roam with would probably bring with them their physical cards—which they probably still have, though they might be sitting in a drawer, admittedly.

[Kenneth Engelhart]

Just to emphasize something that Mr. Robinson said in his opening remarks, the cards will be on the SIM card. So really there's nothing on the phone that affects the mobile payments. If you have your credit cards or whatever on that SIM card and you move that SIM card into a different device, the mobile payments will work.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Okay.

Now, there's a concern among some of my constituents about receiving their credit cards in the mail with these new radio frequency chips. They're concerned that when they're being mailed to them, they're not in some protective covering, and that the information could be stolen even before they receive it.

Do those chips have to be physically activated by the owner of the card before the frequencies are sent out?

[Michael Bradley]

I'd be very happy to answer the question, and I thank you for it.

I'd first want to add to David's and Kenneth's comments about the international interoperability. It's a fundamental premise of Visa card usage that the card or payment credential that you get from your issuer in Canada is used anywhere that Visa is accepted around the world. We're certainly working very closely with GSMA, the cellphone group, and with Rogers and others to ensure that this model of international interoperability continues as we move to the mobile world. So I absolutely support the response there.

In terms of the protective sleeves, first off, when you receive a card, every issuer in Canada requires that you call to activate that card before it becomes usable. You typically have a sticker on the card and a phone number to call and then a password to communicate with the bank in order to physically activate the card, so that at the point at which the customer is getting the card, it's not activated until they actually make it so.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

When that sort of technology is used in a wallet phone, if it is, are there provisions built into the phone to protect against the data being stolen by somebody else?

[Michael Bradley]

Absolutely. The concept that has been sometimes referred to is data “captured” from a card from a proximity device. The fact is that the way we build transactions and the way transactions flow through the network, any data that was captured from a card or mobile device would not be usable to create a new transaction.

So I think the concerns of your constituents are maybe addressed within our current framework.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

All right.

Concerning the use of Bluetooth on the cellphone, or Wi-Fi for that matter, but specifically Bluetooth, you can be talking on your phone, and we are warned that if that Bluetooth is on, information contained in our SIM cards can be stolen.

So if you're using Bluetooth and you have the information for your different credit cards on your phone, are there security provisions built in so that your wallet phone is not more vulnerable to theft just because you are using Bluetooth?

[David Robinson]

There's no relationship in the device between what the Bluetooth radio does and where the cards are on the phone. So it would be a fallacy that you would be able to do that.

[Don Lebeuf]

The data on RFID cards, whether it's PayPass or payWave, in terms of the data you could get off the cards, is unusable to conduct a transaction. You're only getting the card number and the expiry date, and you need a lot more than that to actually complete the transaction. There are a number of dynamic security features that are missing from that data.

We are aware that there is a gentleman walking around selling his product who purports to have a sleeve that can cover it, which is self-serving: that data cannot actually be used to complete a transaction online or face to face, and you cannot counterfeit a card with that data either. It's rudimentary data that you can't turn into an actual transaction.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you for clarifying that.

For consumers as well as vendors who use the phone wallet, are there any cost savings?

[David Robinson]

If you mean to the consumers, I think the big difference will be that you won't have the barriers to carriage. Will it cost you less to have a virtual card, a virtual Visa or MasterCard, than it does...? Well, it doesn't typically cost you to carry a Visa or MasterCard that you are provided by the bank, and I don't think that will change in a mobile, but--

[The Chair, Conservative, David Sweet]

Mr. Robinson, I'm sorry to interrupt you, but we go by the clock. That's it.

We will now go to Mr. Thibeault for seven minutes, please.

[Glenn Thibeault, NDP, Sudbury, ON]

Thank you, Mr. Chair.

Thank you, gentlemen, for being here today. It's a very interesting subject that we're talking about. You have all been providing some valuable information. We're seeing so much innovation coming forward.

Mr. Robinson, what you were talking about is very exciting—what we're seeing, the ease of access, and how we're making it easier for consumers to carry around their phones, since more and more of us are doing that. I forget my wallet more often than I do my BlackBerry, since I need it more than my wallet some days.

In that complexity that we're creating to make our lives simpler, we worry that the potential could be there for...you know, if someone gets hold of our phone because we forget it. What happens then, if all of a sudden someone opens it up, breaks the lock, and goes on a spree, just as they would with the stuff in our wallets?

Can you talk to me a little about what type of protections there are going to be in a mobile payment to ensure that if we do lose a wallet or if someone tries to crack it...? You mentioned 300,000 cyber attacks daily. Is it on VisaNet? We have applications created on a daily basis for iPads and for BlackBerrys. People are going to start looking at targeting these things to try to get access.

What are your organizations doing to start protecting consumers and merchants?

[David Robinson]

I'll try, and I'll try to make it fast.

First, yes, there will be a lock on the phone; then there will be underlying security requirements to make sure that everything in there is containerized, unassailable, and encrypted. Remember, we're effectively creating another version of a Visa card or a MasterCard. Behind that are the payments networks with their zero liability. If your phone, for some strange reason, is stolen and used, the same underlying zero liability rules will apply to a card on the phone that apply to a plastic card today.

[Don Lebeuf]

For the mobile, it creates some confusion. Essentially, as David mentioned, the mobile phone is a supplemental card. It's like having two cards: one is in your phone, and you have your physical card in your physical wallet.

If you lost your phone, the situation is actually no different from that of losing your physical card. You follow the same process: you contact your bank and alert them that the card has been lost. You're covered by zero liability; they'll issue you a new card number; then there is the provisioning that has to be put onto the new handset. It's really as simple as that; it's like having an extra card.

[Michael Bradley]

My comment would be that building and growing a successful payments network is all about security. The brand that we provide, the brand that the financial institutions stand behind the payment products with, is absolutely essential. As we've moved to new generations of technology, from the old days of the click-click machines to magnetic stripes to the computer chips that are now on your credit cards, each one of those steps has been accompanied by brand new layers of security that have continued to ensure that not only is fraud not growing but in fact that it is shrinking as time goes by.

The marriage of computer chips within the mobile phone and the computer chip standards that we have built and that probably most of you have on your credit cards and debit cards in your wallets—these together are a nice marriage of technical security, along with the policies that ensure that you're never going to be held liable as a consumer for fraud. Continuing to protect merchants as well as consumers from fraud is critical.

[Glenn Thibeault, NDP, Sudbury, ON]

I'll start with you, Mr. Bradley, and then I'll give Mr. Lebeuf the opportunity to answer this.

We could go back to the last Parliament and an issue that is ongoing, the “stop sticking it to us” campaign by the Retail Council of Canada and CIPMA, and there are many other organizations that were very concerned about merchant fees, the fees that are hitting small and medium-sized businesses when people use their credit cards. We're hearing now from the Senate committee that the cost of our merchant fees is one of the reasons—there are many, but one of the reasons—that costs in Canada are more than they are in the United States.

If more and more people are going to be using their mobile phones to make their purchases, the credit cards will be linked with this, and so the merchant fees will be attached to that.

Are we going to see any other fees attached to my phone, when I'm using whatever application it may be? Will there be another fee on top of the already high merchant fees that we're hearing of from the small and medium-sized businesses?

[Michael Bradley]

I'll start with that one.

I think it's important to say, first up, that Visa does not set merchant fees. Each merchant in their relationship with their payments acquirer will typically develop a contractual relationship, and part of it includes the settlement terms and financial terms. That would be the basis for the merchant fees. Visa does not set those fees.

Visa has a component that probably represents a component of those merchant fees known as the interchange fee. That interchange fee, for us, has remained relatively stable for the past decade or so. We have been transparent about those interchange fees. They've been available on our website since 2008 and are a matter of public record. We think they reflect a tremendous amount of value that's delivered through the network. We look to set these interchange fees in a way that balances the services that are delivered to merchants and those delivered to consumers.

The benefits that merchants receive out of accepting credit cards, and in fact debit cards too, include immediate settlement or settlement within a very short timeframe; security protections, by ensuring that they no longer have to handle cash in the movement to electronic payments; immediate access to credit for many consumers at point of sale, which helps a merchant to grow their sales.

A study that has been done by Global Insight, which I referenced, says that over the last 20 years upwards of 20% of Canadian economic growth has been driven by the availability of electronic payments. Now, that's not just Visa; that's MasterCard, Interac, American Express, and all of the various players in electronic payment.

There is a huge value there, we believe, to the Canadian economy and to merchants who are accepting the cards. Merchants have lots of choices. There are many who have differing acceptance profiles: some choose not to accept Visa; some choose not to accept Interac, in the case of some online merchants. Those payment choices are what will continue to make the market dynamic and competitive.

[Glenn Thibeault, NDP, Sudbury, ON]

So are we going to see any other fees on top of existing fees, with mobile payments?

[Michael Bradley]

It would be too early to commit to a fee structure, as was just asked by Ms. Gallant. A number of things are still being developed in terms of the value proposition. But as always, we embrace a transparent, open environment, and we'll make no secret of our interchange fees. We'll have merchants and consumers making wise choices.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Bradley and Mr. Thibeault.

Mr. Carmichael, seven minutes.