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.
President, MasterCard Canada
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.
President, MasterCard Canada
Well, their contracts generally do.
Maybe Andrea could speak to that, because—
Liberal
John McKay Liberal 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?
Liberal
John McKay Liberal 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?
President, MasterCard Canada
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.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I had the same experience travelling abroad. My card was not accepted. This system is pretty broken.
Conservative
Conservative
Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB
Does a premium card generate more revenue for MasterCard than a regular card?
President, MasterCard Canada
No, but there is increased spending on the card. On average, 40% more is spent at a merchant's on a premium card versus an ordinary card.
Conservative
Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB
What are the fees on top of the interchange fees? Are any of those additional fees tied to the interchange fee, in the sense that they go up when the interchange fee goes up?
President, MasterCard Canada
There are acquirer fees that mark up interchange fees, and MasterCard has small transactional fees that are flat. We have fees that are ad valorem as well, but they're very small compared to interchange fees.
Conservative
Conservative
Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB
Is there anything in a merchant contract that explicitly states the maximum interchange fee that can be charged?
President, MasterCard Canada
I don't write merchant contracts. I know of none to that effect, but that question is probably better directed to the acquirers, because we don't manage that contract.
Conservative
Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB
Speaking of transparency, it's interesting because this issue is so confusing, even in the way you portray this in section V in your opening statement. You say, “Our highest interchange rate went from 2% to 2.13%, and our lowest effective interchange rate was reduced from 1.45% to 1.21%.” I think the message you want to portray is that they kind of break even. But I want to talk about an extreme hypothetical.
Let's say that everyone was using the basic card rate of 1.45% originally, and over a period of time all of the consumers shifted to a high premium rate of 2.13%. That hypothetical extreme increase would be 47%. It seems to me we're hearing that that's exactly what's happening. It may not necessarily be happening to everybody who owns a card, but there seems to be a wholesale shift. The consumers don't even really realize what's going on, but the companies are shifting consumers from the 1.45% cards to the 2.13% cards.
Is there some truth to the fact that there's a general shift in that direction?
President, MasterCard Canada
No, because you have to demonstrate certain spend levels. The merchant value proposition doesn't kick in until there's a demonstrated spend of $24,000 a year on our card. That's why it naturally stops at about 5% of our base.
Conservative
Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB
But there is a transaction. You even said in answer to one of the questions from across the way that there are programs to encourage issuers to use premium cards. You're encouraging your issuers to push premium cards on people and they are doing that, so more people are moving from the low interchange cards to the high interchange cards.
President, MasterCard Canada
No, we're not pushing their use. We made a program available because we were at risk of losing cardholders and issuers to American Express.
Conservative
Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB
Did that program encourage more use of premium cards?
President, MasterCard Canada
It did, but at a lower cost than American Express.
