Finance Committee on May 26th, 2009

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Only in some cases, you say?

[Jim Baumgartner]

Yes. Overall, as the interchange levels and the assessment levels have gone up.... And actually, as I looked at our last audited numbers through 2008, the interchange had gone up at a little over 2% a year, I think, in terms of their rate. And then our merchant fees had gone up about 1% a year.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

What percentage of those fees from by Visa and MasterCard is charged to you? What proportion is transferred to retailers? You must have an idea. You stated that it is on a case-by-case basis and that it is based on negotiations but you must know the overall percentage. Are you charging the retailers 75% or 80%? I am sure that you have some idea of the amount.

[Jim Baumgartner]

Sure. In the case of the fee increases, what percentage has been passed on? It varies by merchant, but I would say with the larger merchants, typically they tend to be priced at whatever interchange is plus so many cents per transaction. That tends to be how most of them are priced. Smaller merchants tend to have either a blended rate or a couple of rates. So certainly with--

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

To be clear, here is the point of my question. Overall, you must surely be able to tell us what is the percentage of the fees charged to you by Visa and MasterCard that is transferred to the retailers? Is it half? Is it 25%, 75%?

[Jim Baumgartner]

Since 2001, with the changes, about half the fees have been passed on to the merchants.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

So, it is about half.

I have another question about premium cards. I would like you to provide me with a clear answer, Mr. Van Duynhoven.

Who pays for the premiums? Is it the acquirers, the consumers, the merchants, the issuers or the company giving the premiums? I would be surprised if it were the company giving the premiums because nothing is free. Who pays for that, at the end of the day?

[Jeff van Duynhoven]

I can answer that.

In our case, Visa charges the acquirer the extra 20 basis points for the Infinite card. So I get charged all of that for every Infinite card transaction that is processed. As Jim has said, we then have to negotiate with our merchants. So we collect that premium charge from most merchants; some have contracts that don't enable me to pass on that charge, so I am absorbing that cost. I don't get anything extra but I still have to pay Visa that cost.

[The Co-Chair, Conservative, Michael Chong]

Thank you, Mr. van Duynhoven.

Thank you, Mr. Laforest.

Now we're going to go to the member for Mississauga—Erindale, Mr. Dechert.

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

Thank you, Mr. Chair.

Ladies and gentlemen, thanks for your presentations.

We've heard from some of the merchant associations that some of the merchant agreements they enter into with Moneris, TD, and others restrict them from disclosing the fees they are paying for their services. Is that true of any of the agreements that either Moneris or, say, TD Merchant Services has with merchants?

[Jeff van Duynhoven]

Nothing in our agreement prohibits them from disclosing what they pay.

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

Okay. Is that the same for TD?

[Fern Glowinsky]

Yes. From a Moneris perspective, we do have confidentiality provisions in our terms and conditions, and those relate to the terms in our contract and also with respect to pricing.

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

What is the purpose of that restriction on disclosure?

[Fern Glowinsky]

The purpose of that is to ensure, from a competitive standpoint, that our merchants are negotiating with us. I guess to the extent that the information is no longer confidential and over the course of time it becomes public, it wouldn't be continuously subject to that provision. From a marketing and competitive standpoint, our interest is in ensuring that our merchants are negotiating in good faith with us with regard to price.

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

Do you think the consumer has a right to know what the fee is that's being charged on the cost of the transaction?

[Fern Glowinsky]

Our price is different from the interchange rate, if that's what you're referring to.

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

I understand. There seems to be a major concern that consumers don't know the costs of using a credit card, and so I wonder what the damage to your business might be, if any, if disclosure of those fees were required.

[Fern Glowinsky]

I take your point, and I think the reality is that with the now-public information regarding interchange rates, consumers are increasingly aware of the cost. As we've said, the biggest component of our price is interchange, and that information is now public, so it's perhaps more of a dated provision, in fairness, with respect to our agreement.

[Jim Baumgartner]

I'd say it hasn't come up with merchants. They haven't asked us to be able to discuss it, to my knowledge, but it is something, certainly, that I don't know is still necessary in the agreements. It's something this whole process has taught us. We can do a little bit of self-reflection and we can improve in certain ways, and I think that's a good example of a way in which maybe we can improve.

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

Okay, I think that might be helpful.

Do your merchant agreements restrict merchants from advertising a cash purchase price on their goods and services?

[Jim Baumgartner]

No, they don't.

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

Okay, in none of your cases.

Do you collect higher fees for processing Infinite or premium credit cards?

[Jim Baumgartner]

Yes, we do in some situations and in some situations we don't. It depends on the actual agreement with a specific merchant. Each merchant negotiates individually with us.

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

Is there a higher cost for processing the Infinite or premium card versus another card?