Evidence of meeting #37 for Finance in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was interac.
A recording is available from Parliament.
President and Chief Executive Officer, Interac Association
It's a great point. We feel we need to have a distinct choice for merchants, because if the price compression happens on the merchant and he says he's going to accept all three cards, our acceptance advantage will erode before long.
We feel we have the ability, having been a not-for-profit for so many years and having this strategy and this ubiquitous acceptance, to have a distinct choice for merchants and a distinct cost advantage.
Conservative
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Thank you.
Thank you, Mr. O'Connell. Your testimony has been very clear and very helpful today. Thank you for it.
Generally, competing with yourself doesn't work, and you have built into your structure inherent conflicts. It's very difficult to see how this is actually going to be resolved. You have on your board the Bank of Montreal with an interest in MasterCard and TD with an interest in Visa, etc. I can't even imagine all the other conflicts.
So you want to move out of that conflict. You acknowledge conflict and you want to move to get a change to the consent order. What I don't understand is, as long as those conflicts exist, how can you actually ask for a change in the consent order? If the board itself, even moving to a kind of non-interest board model, still has these inherent conflicts. Aren't you simply the financial version of a dead man walking?
President and Chief Executive Officer, Interac Association
So clarify for me how we can proceed with the bureau with the board we have and the governance challenges.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I don't understand how you're going to ask the Competition Bureau for a variation on your consent order if those conflicts still exist.
President and Chief Executive Officer, Interac Association
Well, I can't go into the specific deliberations. The major purpose of the consent order deliberations and the change we're requesting is to ensure that the organization, going forward, is governed independently by its users and that decision-making is defined by competitive terms, not any other factors, and so forth. That very board has sponsored that restructuring project. It has been in discussions with the bureau, and they are ready to move to that, recognizing that this is what Interac needs.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Why would Bank of Montreal, for instance, want you to get a change so that you can compete with their Maestro product? That doesn't make sense to me.
President and Chief Executive Officer, Interac Association
Just because the Bank of Montreal may support competition in the debit market doesn't mean they de-support Interac. I think Interac is very important, and they are demonstrating this in the costs and time that they have put into this endeavour over the past two years. You'll have to ask more details of them, but from an issuer standpoint I think it's very important to have Interac as a countervailing force with respect to their dealings going forward.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
I agree with you from the standpoint of competition in the marketplace, consumers, and what's in the best interests of the public. I don't quite see it from the Bank of Montreal's standpoint.
When MasterCard was here, they said, “Maestro delivers more value to consumers and merchants than Interac through enhanced security, greater network reliability, and international reach”. I was surprised by that statement, because I didn't think their security was all that much greater than yours, nor their reliability that much greater than yours, nor their international reach that much greater than yours.
Could you offer your observations on those statements by one of your board members?
President and Chief Executive Officer, Interac Association
As I said in my opening comments, I support those statements. I understand the need for MasterCard and Visa to try to convey a value proposition on why they are absolutely needed in this marketplace, and they've chosen to take the tenets that they're more secure, that Interac isn't online, and that they're international. In my opening statements I hope I was able to clarify what is true and untrue there. We are online. We are one of the most secure debit networks in the world by almost any measure, and I pointed out some of what is happening on credit card fraud, credit cards being their very systems.
I would agree with you. Interac as a service is not broken; it is a world-class infrastructure and a great national payment system. Interac as an organization, in a new marketplace and needing to compete in this multi-network environment, is the issue.
Liberal
John McKay Liberal Scarborough—Guildwood, ON
Thank you for flatly rejecting that concept.
MasterCard claims its fee per debit card transaction is 0.5¢. Yours is 0.8¢. It looks like predatory pricing; it smells like predatory pricing; it might even be predatory pricing. You're pretty experienced with this market and you're running it on a break-even basis. On the face of it, it looks like they are trying to muscle your markets. Is that correct?
Conservative
President and Chief Executive Officer, Interac Association
As I said, their pricing is very different from what they have anywhere in the world, either the MasterCard debit or the Maestro. Yes, I'm in a cost recovery model. I know my marketing and R and D budgets, and I know that we vacillate from 0.4¢ to 0.8¢ without any return--
Conservative
Conservative
The Acting Co-Chair Conservative Michael Chong
Thank you, Mr. Chair.
Good morning, Mr. O'Connell.
You're here on behalf of the Interac Association and its board of 61 members, I believe it is.
President and Chief Executive Officer, Interac Association
The board is 14. It has 61 members in total. Actually, it's a little over 60 members.
Conservative
The Acting Co-Chair Conservative Michael Chong
That's my understanding of the current structure of the organization. My understanding also is that there is an interim board that has been tasked with negotiating the new terms of what Interac's fee structures would look like, provided that the Competition Bureau amends the consent order. Is that correct?
President and Chief Executive Officer, Interac Association
That is correct. The current board recognized that for the future restructuring, there is a limited mandate of an independent board. It's composed of senior merchants; an issuer; the former founder and CEO of STAR, who loves to tell us what not to do; and a number of other acquirers. Its purpose is, number one, to look at the future competitive model of all five services and what pricing structure is going to respect and entail success there. Also, because all the members of the association will become clients if the restructuring goes through, it was obviously felt that an independent board was needed to oversee those things.
Conservative
The Acting Co-Chair Conservative Michael Chong
So this interim board of seven members will form the basis of the new board of the new for-profit entity if the transition to a new organization, a new for-profit commercial entity, is allowed. So the views of this interim board, I think, are pretty important with respect to the future of the Interac system in Canada, provided that the Competition Bureau grants that amended consent order.
So my question to you is this. In your opening remarks you remarked on the fact that internal changes to Interac are not enough and that three additional things need to happen in order to ensure a competitive payment system in Canada: first, a need for greater transparency in cardholder choice; second, a need for greater transparency in merchant choice; and third, having the same basic rules for all providers. Can you tell this committee what the views of the new interim board are with respect to these issues, and more generally with respect to the future of the payment system in Canada?
President and Chief Executive Officer, Interac Association
I would say they echo that. They would completely underscore the need. Beyond intelligent and proper pricing and an independent board that's governed independently, if it's users, they support that if merchants are not being given an overt choice or a clear understanding of Interac's value proposition versus the other two competitors, if the two competitors are subject to different rules in bringing out new products and different levels of scrutiny, then Interac is not going to be successful. So they support those, in addition to cardholders needing to understand the brand they're using and the payment vehicle they are using on the debit card.
Conservative
The Acting Co-Chair Conservative Michael Chong
In terms of choice at the point of sale, when somebody's using debit would they be given a choice as to which debit system they wish to use?
President and Chief Executive Officer, Interac Association
They would echo that if the Interac brand is confused in any way in a multi-brand situation on the card, it's to our detriment, and it doesn't adhere to our tenets of consumer choice and then merchant choice.
Conservative
The Acting Co-Chair Conservative Michael Chong
In other words, it's allowing the consumer to choose which of two or three debit systems they can use at the point of sale.
President and Chief Executive Officer, Interac Association
Right, and that has to be overt. These tactics are very important. Take a look at the U.S. debit wars and the tactics that were employed around whether the brands of the two debit networks were not disadvantaged in any way, whether they were both prominently displayed in an equal fashion. You have seen the Air Canada case around Air Canada putting itself first on the screen to select, and WestJet and everything else below it. Well, you get this default behaviour happening. That can't happen with the Interac brand or it's going to be detrimental to our future success.
Those are the types of things, in addition to the rules framework and the scrutiny that we're talking about.
