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.

On the agenda

MPs speaking

Also speaking

Mark O'Connell  President and Chief Executive Officer, Interac Association

11:55 a.m.

President and Chief Executive Officer, Interac Association

Mark O'Connell

On a switch fee basis, I am confident that we will continue on a low-cost basis and will respect the roots of Interac, and we'll be opening up the books.

When you talk about interchange, remember that it's not a revenue for the network. You are right that it's a mechanism that my competing networks will be utilizing to try to take away my issuers on the bank side. That's the competitive reality I face: a multi-network environment that is occurring.

When you look at this movement to provide an incentive to move and at the fact that the issuers' costs are also rising—fraud, for example.... I mentioned we had a great success in 2008 at $104 million. Well, I can tell you now that due to organized crime, they have gone back to their usual trajectory. The issuers share in the burden of all fraud costs, which are well north of $100 million, and they have customers who are increasingly demanding in respect of the new payment vehicles and the features they want. So the issuers have these costs. They believe they're not readily able to recoup these costs, and so there is a point at which the incentives being offered by my competitors are going to amount to an offer the issuers can't refuse.

So in our strategy, we need to look at, in terms of the issuing value proposition, what I call a keep-from-going rate, if you will. But given the base of our acceptance, you have to realize that the keep-from-going rate can be significantly and distinctly lower than what Visa and MasterCard have to offer as they penetrate this market. And I believe that if we stay true to our roots with the merchant value proposition we have, the merchants will be the architects of their own cost future and will continue to accept Interac on a preponderance basis, which will allow our rates to be significantly lower than those of our competitors but still give the issuers a value proposition they need and deserve.

11:55 a.m.

Conservative

The Co-Chair Conservative James Rajotte

Thank you.

We'll finish with Mr. Lake, although I understand you may be sharing your time, Mr. Lake.

11:55 a.m.

Conservative

Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB

Mr. Chair, I'm just going to, right off the start, let Mr. McTeague ask a quick question he wanted to follow up on.

11:55 a.m.

Liberal

Dan McTeague Liberal Pickering—Scarborough East, ON

Thank you, Mr. Lake, for that cooperative spirit.

It's very simple. Do you anticipate a demand from issuers for an interchange fee? We know it's zero right now. Do you see this happening as part of these changes down the road?

Thank you, Mr. Lake.

11:55 a.m.

President and Chief Executive Officer, Interac Association

Mark O'Connell

I think the competitive dynamics that I just described mean that I'm going to need an issuer value proposition in a multi-network environment, and I'm going to have to make sure I have my merchant value proposition. I think it is a reality that we're going to be able to look at charging this keep-from-going rate. But leveraging our acceptance from coast to coast, when you play that across 3.6 billion transactions, you have a very fair return at a lower rate than what my competitors can provide.

11:55 a.m.

Conservative

Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB

Okay.

Now, just following up on the line of questioning that's come up a few times regarding this MasterCard switch fee of 0.5¢ per transaction, I'm interested in hearing a little bit more about what Visa and MasterCard have done in the U.S. Maybe that would provide us with a little bit more context for what we might see here, as we move forward, because it does seem like that 0.5¢ per transaction might be kind of an artificial number, a temporary number right now.

What are they doing in the U.S. with Visa and MasterCard debit?

11:55 a.m.

President and Chief Executive Officer, Interac Association

Mark O'Connell

Are you asking where is the current switch fee or interchange rate in the U.S.?

11:55 a.m.

Conservative

Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB

Switch fees, interchange rates, whatever the case may be--the overall package, from a debit standpoint. What are we seeing in the U.S.?

11:55 a.m.

President and Chief Executive Officer, Interac Association

Mark O'Connell

I believe that interchange rates—now, I'll predicate this that this is my latest belief, I don't know if it's completely up to date—are very similar. The compression is unbelievable on the interchange between STAR, MasterCard debit, and Visa, and you're up north of a quarter a transaction, I believe, for interchange.

With respect to switch fees, there are so many fees and assessments in their business models, I can't comment on or discern them.

And remember, my counterpart at MasterCard was talking about the distinction that in the U.S. it's really MasterCard debit, and that means signature debit. For PIN debit or Maestro, you have to look to the U.K. to draw some parallels as to their pricing. I believe the interchange there is north of 10 basis points or so forth. We'd have to look at the specific fees.

But I think the point is that the pricing in these other markets is, to say the least, markedly different from the current switch fee only, with interchange set at zero basis points.

Noon

Conservative

The Co-Chair Conservative James Rajotte

You have forty seconds, Mr. Lake.

Noon

Conservative

Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB

Actually, I had some other questions, but they'll take longer than 40 seconds, so I'll leave it at this.

I just want to commend you, if I could, for being the only witness up here. When there are four, you have some time to catch your breath. But it's not easy when you're the only one and you're answering all the questions. I commend you for taking the time with us today.

Noon

Conservative

The Co-Chair Conservative James Rajotte

Thank you, Mr. O'Connell. Thank you for being with us here today, for responding to our questions.

Thank you, members.

The meeting is adjourned.