Finance Committee on May 14th, 2009

[Tim Wilson]

I think clearly, with the debit product in markets today, which has zero interchange and low fees, they feel it's—as you mentioned—the lowest-cost form of payment. We like to look at payment more broadly, and competition more broadly, in that we look at the value a product provides, not simply the price. It's like looking at the car market and comparing BMWs to Honda Civics. You pay more for one because you get increased features and functionality. We bring new features; we bring choice; we bring competition. We think that will deliver value.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

On the fees, are you suggesting the same fee structure as MasterCard, or is your model different?

[Tim Wilson]

Ours is a hybrid fixed fee and percentage fee. It's a bit of both. It's a different model.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Okay.

[Tim Wilson]

We disclose all those rates on our website.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

With respect to credit cards, you mentioned earlier that you can provide statistics that demonstrate that people purchase more if they have a premium card. Can you provide those statistics to the committee? I'd be very interested to see that. I asked the same question to the Retail Council of Canada, if they believe that consumers would actually spend more because they have a premium card as opposed to a card with fewer attributes, and they said they didn't believe it.

[Tim Wilson]

We can provide some statistics to the committee.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

If that were true, you could presumably show that to the merchants, and they would want people to use those cards because they would spend more and perhaps be willing to pay a higher price.

[Tim Wilson]

Yes. We believe these are the highest-valued consumers to merchants. We set very specific spending or income thresholds for the cards to ensure that they are the most valuable customers. They spend the most and deliver the most value for retailers.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Would you say that's the justification for charging a higher interchange fee for processing that credit card?

[Tim Wilson]

It's part of it. These cards deliver more value--the primary factor we consider in setting interchange rates on the merchant side. We also mandate a higher level of features to banks. We require banks to put in additional features, which costs money on these cards, and because of those requirements, which are necessary to compete with American Express—the primary reason we launched the card—we need to provide the banks that issue the cards with a higher level of interchange to offset those increased costs.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Do consumers demand those extra reward attributes that you add to your card?

[Tim Wilson]

A number of studies show that rewards drive consumer spending higher.

[The Co-Chair, Conservative, James Rajotte]

You have one last brief question, Mr. Dechert.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Do your merchant agreements restrict merchants from disclosing the fee structure they pay on any transaction?

[Tim Wilson]

We disclose our interchange fee structure on our website. Any consumer or merchant with access to the Internet can see it.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

On their specific arrangement with Visa, are they allowed to disclose that to their customers?

[Tim Wilson]

A merchant's specific arrangement would be between it and its processor, it's acquirer. I'm not sure what their contracts require them to do in terms of confidentiality.

[The Co-Chair, Conservative, James Rajotte]

Thank you, Mr. Dechert.

Mr. Thibeault, please.

[Glenn Thibeault, NDP, Sudbury, ON]

Thank you, Mr. Chair.

Thank you, gentlemen, for coming today.

We've heard a lot about interchange fees. I believe there are 19 interchange fees out there, from what we've heard from our previous witnesses. They said they charge three specifically. Can you comment on those numbers, how you address those interchange fees, and what you charge merchants?

[Tim Wilson]

In Canada for Visa we have 21 different rates for credit cards. We have seven different rates for debit as well, and one for what we call prepaid cards. When we look at credit alone, there are three different card types. There are regular cards, what we call Infinite cards, and commercial cards. Each one attracts different rates in seven industry categories. There are three categories of cards and seven industry categories or transaction-type categories, so that gives us 21 rates. We believe that differentiation is necessary because we provide different value to different industries. For example, credit cards really enable the business of an online merchant, so they drive more value than for a grocery retailer, and the rates reflect that.

[Glenn Thibeault, NDP, Sudbury, ON]

Classic Visa may have a set rate. The new infinity premium card may have a higher rate. What powers do merchants currently have to refuse to take the infinity card compared to a Classic Visa? Can they impose a surcharge when someone uses an infinity card?

[Bill Sheedy]

It's referred to as Visa Infinite.

My colleague made reference earlier to an honour-all-cards rule, and we have one that applies across the suite of credit products. A merchant makes a decision to accept Visa for credit, and they make a separate decision to accept Visa or not for debit.

Within that suite—and this is the way our business works— it's very important that if the Visa brand is on the door and the consumer goes to shop at that merchant location, every bit of experience we have suggests that the consumer needs to know whether their card is accepted or not. We have an honour-all-cards rule that if the merchant accepts Visa they need to accept the basic credit product and the Infinite product. That is a common choice they make.

We also have a rule for the consumer experience in much the same vein. When they show up at the point of transaction to buy a $100 sweater, they know that transaction is going to cost them $100. We think it's bad business for a consumer to experience a bait and switch--show up at the point of sale thinking they're going to make a $100 transaction and be surprised and disappointed that it will be that amount plus a surcharge. So we've had a rule from the beginning of the network that those transactions must be done at the face value of the transaction with no incremental amount applied.

[Glenn Thibeault, NDP, Sudbury, ON]

So it's all or nothing, then, for the merchants. They can't decide that they only want to take Classic Visa. It's all or nothing.

[Bill Sheedy]

There is an option.

First of all, as it relates to the transaction amount and the decision to accept, that's a common decision. If the consumer presents a Visa Infinite card, and the card design is clearly laid out, then if the merchant wants to try to influence the consumer and ask for another form of payment, and provide a discount, for example, for cash, that's an option the merchant has. It isn't something that we see as being typical. Our experience is that merchants, when the consumer shows up at the point of sale with goods, want to transact; they want to move quickly. So we really don't see much of a merchant demand for that type of exchange with the consumer at the point of sale.