Finance Committee on May 14th, 2009

[Andrea Cotroneo]

Maestro is MasterCard's debit brand in Canada. Maestro cards do exist in Canada at this time.

[An Hon. Member]

As well as in Quebec.

[Robert Vincent, Bloc, Shefford, QC]

All right.

I will continue along the same lines. You also state:

Maestro operates in exactly the same way as Interac, processing point-of-sale debit transactions on a real time basis, for a flat fee on a per transaction basis. Maestro also offers the following benefits to consumers and merchants: Maestro is currently the lowest-cost debit proposition in the Canadian market—in fact, Maestro is currently 37.5% cheaper than Interac.

This leads me to ask what the price would be. I was wondering if I was paying too much by using Interac. Therefore, I sought to obtain information about Maestro. Since I was unaware of this product and my curiosity had been piqued, I called the National Bank, located in my riding, to request information about the Maestro card, and the costs associated with it.

Yet, the National Bank was not aware of the existence of such a card. I was re-directed to representatives of MasterCard, located in Montreal, to whom I asked the same questions. They were also unaware of the existence of a Maestro card. They then transferred my call to TelNat so that I could be given information, and they also had no idea what the Maestro card was. Then my call was transferred to representatives of the National Bank, in Montreal, who had no idea of what the Maestro card was. Representatives of the National Bank then transferred my call to Global Payments, who also were unaware of what the Maestro card was.

I spent nearly two hours making telephone calls to try and obtain a Maestro card, and find out what the rates are; nobody is aware of your product!

Can you explain to me why no one is aware of your product, when you claim that anyone in Canada can obtain a card?

[Andrea Cotroneo]

Maestro behaves exactly like Interac. It is PIN-based, so consumers enter a personal identification number, and the funds exit the consumer's account in real time. There's no lag of time there. Maestro is in its infancy in this country. We have just introduced it, and not all of our customers offer it at this time. That is likely why the National Bank, for example, does not offer Maestro at this time.

[Robert Vincent, Bloc, Shefford, QC]

How is it that the headquarters of MasterCard, located in Montreal, isn't even aware of the existence of this product? Is this product integrated with a credit card, or is it an entirely separate card?

[Andrea Cotroneo]

The product is not on a credit card. Maestro appears on the back of the access card you use to facilitate debit card transactions, either at a merchant or at a bank machine.

[Robert Vincent, Bloc, Shefford, QC]

How do I go about finding out if I'm going to pay 37% less than if I were to use Interac, when no one can tell me what the product is, and how much I have to pay each time I use that debit card?

[Kevin Stanton]

As a consumer you won't be paying anything for Maestro. It is a fee paid by the acquirer to MasterCard. There is no interchange on Maestro. There's a single flat fee of half a cent. That eventually is what the merchant pays.

[The Co-Chair, Conservative, James Rajotte]

You have 30 seconds remaining.

[Robert Vincent, Bloc, Shefford, QC]

In your document, you talk about transparency and the fact that your interchange rates are posted on the Internet. Earlier, you talked about merchants. I went to your Web site, under the heading “Merchants”, but one has to fill out a form.

MasterCard may inform us or not, at its discretion. I tried to obtain information. I do not know the cost, nor the interchange rate. Nobody knows anything. I spent the afternoon trying to determine the interchange fees on all of your products, but I was unable to get a price.

Can you tell us today what the MasterCard interchange rate is?

[The Co-Chair, Conservative, James Rajotte]

Just very briefly, please.

[Andrea Cotroneo]

Mr. Chair, I'll take that question.

I'll talk to you about effective rates. There are three types of products, as Mr. Stanton mentioned. For a standard consumer product, the effective rate is 1.54%. For a premium consumer product, the effective rate is 1.88%. For a corporate product, the effective rate is 2% flat.

[The Co-Chair, Conservative, James Rajotte]

Thank you.

We'll now go to Monsieur Bernier, s'il vous plaît.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you, Mr. Chair.

Thank you for being with us today. You must certainly have read our government's budget, tabled by the Hon. Jim Flaherty, that deals with consumer transparency in the area of financial products.

Do you believe that if the federal government were to introduce regulation—and I do emphasize the word “if” because we have not reached that point yet—it should call for greater transparency when companies provide information to clients on credit and debit cards? Is this something you would like to see in future federal regulation?

[Kevin Stanton]

I think that it's fair to say that there is a failure of understanding on the merchant side of the business. On the issuing side of the business there's a very robust disclosure regime that doesn't exist, and perhaps should exist, for small merchants. There are existing federal agencies whose mandates could be extended to bring some of the excellent work they've done in that respect.

However, while the government considers that, MasterCard believes it has a duty to move forward to make sure that happens while those decisions are being made. We're going to move forward with developing a disclosure regime ourselves.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you.

During our meeting with coalitions, there was a lot of discussion about the Australian model. Those groups urged the government to adopt the Australian model. I'm not an expert on the Australian model, but I believe that it is the government that sets the rates through regulations, or orders-in-council.

Generally speaking, have I properly summarized the Australian model?

[Kevin Stanton]

Yes, they adopted specific price controls. I think it's important to note that the Reserve Bank of Australia has removed those restrictions at this point. Their reason for it is to see what happens.

[Maxime Bernier, Conservative, Beauce, QC]

Thank you.

Is there a model that the Canadian government could draw inspiration from? Does the European Economic Community have any regulations on transparency? Are there rules, standards or industry standards applied in other countries?

Personally, I am very much in favour of self-regulation, because it falls directly within the purview of industry. I'm convinced that you are much more knowledgeable about your industry's intricacies than a politician. When the government regulates, it tends to nitpick and to go into too much detail. This ultimately becomes a burden on people.

Are there other models of self-regulation, or government regulation adopted in other countries? I'm thinking mainly of the European Economic Community.

[Kevin Stanton]

The models in Europe are maybe inapplicable because they apply to cross-border transactions, which don't exist in Canada. It's an EU regulation that applies.

Australia is really the most extensive and comparable market to see what happens when these regulations are put in place. There are schemes in Israel and Mexico, but they've only been around for very short periods of time.

[Maxime Bernier, Conservative, Beauce, QC]

Which do you prefer? If we do introduce regulation, which model would you prefer we suggest to the senior officials at the Department of Finance?

[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.

[The Co-Chair, Conservative, James Rajotte]

Merci, monsieur Bernier.

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

[John McKay, Liberal, 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?

[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.

[John McKay, Liberal, Scarborough—Guildwood, ON]

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