Evidence of meeting #28 for Finance 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.
NDP
Glenn Thibeault NDP Sudbury, ON
How many of these different rates existed, let's say, three years ago, before the arrival of these premium cards that we've been hearing a lot about?
President, MasterCard Canada
There were three rates before. Individual merchants went from having three rates to having three consumer rates, but there are 19 rates because there are rate reductions for certain categories. There are volume recognition advantages.
Catherine Swift mentioned 100 rates in the U.S. I think it's probably more, but every time a rate has been created in the United States, it has been a reduction of the fee to the merchant, because it's a very complicated environment there. We don't have that complicated environment here, but there was opportunity to make sure we were more sophisticated in recognizing the differentiated value propositions. A jewellery store sees more upside spending than a grocery store, so we lowered grocery store interchange to recognize that it's higher value than cash and other cards, but less than you'd see for other kinds of merchants.
NDP
Glenn Thibeault NDP Sudbury, ON
You mentioned that fortunately we're not the United States, because there may be more than a hundred there. I still find the 19 complex and confusing, so imagine what a small or medium-sized entrepreneur or business is going through when they're getting the bill and trying to understand the process.
Is it your opinion that interchange rates should be clear to both the merchants and the consumer before a transaction takes place?
President, MasterCard Canada
Honestly, I don't know if it's useful information for the consumer. I think the merchant needs to know how interchange is priced. Clearly, we intended to make it simpler by providing customized reports, and clearly we have to work on making sure our small merchants are taking advantage of that infrastructure, but I think what's more important is for the information to be available on a daily basis so that merchants can create some sort of predictability over financial periods--weeks, months, or whatever is convenient--in terms of the actual costs. I think what's important up front is that they understand the structure of their contract and how things get priced as they come through.
I don't know that any particular operational advantage for the merchant is created if a clerk is able to understand that, but it is one of the things that I think Catherine Swift and CFIB can help us understand better. That's why we're anxious to--
Conservative
NDP
Glenn Thibeault NDP Sudbury, ON
I'll be very quick, then.
How do you think we can make this transparent to the merchants? You mentioned that there needs to be some work; in 20 seconds, what do you think we can do to try to resolve this issue?
President, MasterCard Canada
It's enhanced disclosure, but education has to be a big part of it. The rate calculator is an important feature of that education so that they understand that they might not need to accept credit cards to have a viable business.
Conservative
The Co-Chair Conservative James Rajotte
Okay. Thank you, Mr. Thibeault.
We will now start the five-minute rounds. Go ahead, Mr. McTeague, please.
Liberal
Dan McTeague Liberal Pickering—Scarborough East, ON
Mr. Stanton, thank you for being here.
I think the reason that you are here and we are here has a lot to do with what has taken place over the past several months. I happen to believe that a number of merchants who have come to me had no particular agenda, particularly independent gas retailers. They have told me that far from not even knowing the interchange fees of your company and not being allowed to provide discounts, in fact this has occurred because of these increases in premium cards that your company and Visa have pursued. I might add to the committee that the two of you divide 94% of the market that you call competitive.
Mr. Stanton, if you have this information about interchange fees, why is it that nobody seems to know, with the exception of you, where that is? You suggested to the committee here on record that you've had them out for three years. Why is it that even the merchants who subscribe to your fees and to your credit card company don't seem to have that information either? Can you explain that?
President, MasterCard Canada
You know, I can't explain why the association is having--
Liberal
Dan McTeague Liberal Pickering—Scarborough East, ON
We're members of Parliament here, Mr. Stanton. I don't have it either, and neither do the clerks or the research officers. Sir, why is that?
President, MasterCard Canada
I believe, Andrea, maybe you can clarify. We provided it to Parliament.
Andrea Cotroneo Vice-President and Canada Region Counsel, MasterCard Canada
We provided it to the Senate banking committee and we have provided it to the researchers at their request. We'd be happy to provide it to this committee and to the clerks.
Liberal
Dan McTeague Liberal Pickering—Scarborough East, ON
The parliamentary library stated to us just a few days ago that MasterCard does not disclose its interchange rates in Canada. Figure 2 compares Visa's consumer interchange rates formula before and after April 2008.
Enough on that. I want to see this. I'm hoping we're going to be able get that in a few minutes, because there's a litany of comments that you made here that I wish to challenge.
You've suggested that the Australian model.... On what basis and with what proof or evidence do you say that it is not working, that it has in fact worked against the interests of consumers? The equivalent of Statistics Canada in Australia suggests that price inflation did indeed decline after the new interchange rules were introduced. The same organization suggests that new interchange rules had no effect on the takeup of credit cards and accounts, suggesting it was 120,000 in 2001 and going all the way to 1.8 million. The same agency, Mr. Stanton, suggests the new interchange rules had no discernible effect on the number of credit card transactions, and finally, that new interchange rules had no discernible effect on the value of credit transactions.
This flies in the face of what you said, sir. Are you going to provide this committee with the information substantiating what you've just said about the Australian model--yes or no?
President, MasterCard Canada
Yes, but to add to that, I'm not suggesting that MasterCard or Visa were hurt. I'm suggesting that consumers were hurt, and that's well documented in studies by the government accounting office in the United States and a study called by the CRA, and it has been acknowledged in the United States by the Department of Justice, the FTC, and the Small Business Enterprise Council there as well.
Liberal
Dan McTeague Liberal Pickering—Scarborough East, ON
Will you provide that information to this committee, then, sir?
Liberal
Dan McTeague Liberal Pickering—Scarborough East, ON
Thank you.
A little earlier you suggested as well that a number of opportunities are given to smaller players to compete, and that it may very well be in their interests to compete.
Tell me something. Because we don't have, up until this very moment, a list of your interchange fees, do you have performance programs of the kind Visa has? How do you believe small business is able to access those better rates, which would obviously save them the time and task of having to spend more simply because they happen to be small? Does that not run contrary to your assertion, sir, that this would be good for small business?
President, MasterCard Canada
We have performance tiers, just like Visa. One of the proposals we put forward to the CFIB was to create a single tier that would acknowledge the collective volume of their membership.
Liberal
Dan McTeague Liberal Pickering—Scarborough East, ON
Mr. Stanton, I'm going to shift to debit now, and I know other colleagues here want to talk about this as well. To forgo ad valorem on your Maestro products, you've stated that your flat fee for MasterCard would be lower than that of Interac. How do you know what Interac is going to be?
Second, if they introduce it at 1%, will yours be less? More importantly, your parent or associate company in the United States offers Maestro or MasterCard debit. Do you believe the CEO down the road will introduce that as an ad valorem and walk away from your commitment here to have a flat fee if you get into the business of debit cards?
President, MasterCard Canada
MasterCard makes these decisions on a country-by-country basis. I don't see MasterCard debit as being appropriate for this market because of the pricing environment. To answer your question, it is our strategy to remain at a lower flat fee than Interac. We know what it is because they publish it on the Internet.
Liberal
President, MasterCard Canada
That's our strategy--just as they can't rule out that we will be higher than they will.
Conservative
The Co-Chair Conservative James Rajotte
Thank you very much, Mr. McTeague.
We'll go to Monsieur Vincent.
Bloc
Robert Vincent Bloc Shefford, QC
Mr. Chair, my questions are for Ms. Cotroneo.
In the letter you sent to the senators, you said the following: “MasterCard does have a debit product in the Canadian marketplace called Maestro.”
Is equipment to process this Canadian product available in Quebec? Does the Maestro card exist in Quebec?