Finance Committee on May 26th, 2009

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Have you been approached to program terminals to ensure either Visa or MasterCard? Are there any inducements to ensure one priority routing or the other for either TD or Moneris?

[Jim Baumgartner]

In our particular case, Visa has offered us an incentive to develop Visa debit. However, we've not elected to roll it out yet because we're not comfortable right now that the price is appropriate for merchants. When MasterCard introduced the price for Maestro, we had some serious reservations about even offering it to merchants. But I have to give them some credit. They've since responded, I think, very favourably and have acknowledged that they're going to bring it down to the Interac levels, which obviously right now are virtually free.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

TD, would you like to--

[Jeff van Duynhoven]

We certainly talked to both card brands, and like Moneris, Visa had incented us to develop that capability. However, they've now also mandated acquirers as part of their operating regulations. We're subject to considerable fines if we actually don't support the Visa debit product.

But I would also like to add that it is giving merchants choice. So merchants do have a choice whether they choose to accept Maestro, in the case of MasterCard, or Visa debit, in the case of that particular product.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Can you describe that choice?

[Jeff van Duynhoven]

In our case, we will advise our customers. We believe in transparency, as I said in my opening statement, so we'll give customers the choice. They will know that they've signed up for Visa debit and what the costs associated with that are.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

I have one quick final series of questions. This is about shifting the risk on debit cards.

I've been advised--and I'm asking if your understanding is the same--that there will be a shifting of the risk with chip cards, meaning that merchants will be bearing more of the risk. I'm seeing nodding heads. Is that your understanding as well?

[Jim Baumgartner]

That's exactly right. Starting in October 2010, both card brands have announced what's called a liability shift. That is, if you went to a merchant with a chip card, you entered your PIN, and then said that it wasn't you, the merchant would be liable for that transaction if they don't accept chip transactions. That's done, presumably, to motivate the merchant to roll out the chip devices.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

So there will be costs borne by the merchant for accepting that risk, which could be huge. Even though your interchange fees and other associated costs would normally have covered that associated risk, now you're downloading it.

[Jim Baumgartner]

In some respects it's a bad thing for us, though, because if the merchant isn't able to honour the liability--the merchant processor, or us, or just business, for example--we end up absorbing that liability. So this particular rule is a very, very bad thing from the merchant perspective. It's more pro-consumer.

[The Co-Chair, Conservative, Michael Chong]

Thank you very much.

Go ahead, Madam Glowinsky.

[Fern Glowinsky, Senior Vice-President, General Counsel and Corporate Secretary, Moneris Solutions]

I just want to say that it's not our downloading. The payment brands, Visa and MasterCard, have announced liability shift. It's something that's being done and we're part of it.

[The Co-Chair, Conservative, Michael Chong]

Thank you, Madam Glowinsky.

Thank you, Mr. Baumgartner and Mr. van Duynhoven.

Monsieur Laforest.

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

Thank you, Mr. Chairman.

I want to thank the witnesses for being here today.

Since we do not have too much time, I will start with a specific request. Since you mentioned transparency, I want to ask you to be transparent.

My first question is for Mr. Baumgartner as well as Mr. Van Duynhoven. Could you provide us with a detailed list of all the fees charged to merchants by Visa, MasterCard and you, the acquirers? Are those fees fixed or are they a percentage of the value of the transactions? We have heard a lot about interchange fees, assessment fees, marketing fees and fees for foreign cards. Could you provide such a document to the committee? I am not asking you to answer now because it would take far too much time. Can you do that?

[Jim Baumgartner]

Yes, absolutely.

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

Very well.

Again, to both of you, are you charged direct fees by financial institutions for transactions processed by credit or debit cards?

[Jeff van Duynhoven]

No. We are charged fees by Visa or by Interac for processing transactions on their behalf.

[Jim Baumgartner]

The same is true for us, with the addition of MasterCard.

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

You charge fees directly to merchants. So, you act as intermediaries between retailers and card issuers. You charge fees to retailers and those fees do not come from MasterCard, Visa or the financial institutions? On what basis are they set?

[Jeff van Duynhoven]

In my opening remarks, I noted that interchange comprises the vast majority of the fees that we charge. So we have those costs, and I think Jim mentioned assessment fees that the card brands charge as well, so those are two inputs that we have. And then we have our own direct costs. We then have to determine how the merchant is processing cards, the type of cards they take, etc., and then we can determine a price to charge to that merchant, obviously being aware of what our competitors are charging in the market as well.

[Jim Baumgartner]

The fees are negotiated individually with each merchant, but the vast majority of the fee would be the merchant discount rate, the fee that we charge to the merchant. From a cost perspective, the vast majority would be interchange, and then assessments, and then our operating infrastructure as well.

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

The representatives of Visa and MasterCard all stated that they do not charge any interchange fees. Is that true?

[Jim Baumgartner]

That's exactly the case. Their fee base for their shareholders is generated from service or assessment fees, and that's included in our cost. So they will bill us quarterly, based on our overall volume, and then we'll remit money to both Visa and MasterCard as well as Interac for their fees.

And the card issuers do the same thing. So if you have a card issued by Desjardins, for example, all of your volume is added up, and Desjardins will pay issuing fees for those as well.

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

So, Visa charges fees to you and you charge them to retailers.

[Jim Baumgartner]

That is the case. In some cases we'll end up absorbing them. It's a negotiation with the merchant, depending on what the market will bear and what competition will bear. But yes, that's exactly right.