Finance Committee on Feb. 13th, 2014

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Okay.

Martha, when you were talking about this, you talked about the U.S. being way behind and that part of that is the lack of terminal standardization. It was one of the things you commented about. It strikes me as...the whole market for this and for the businesses that are into this.

Are there major barriers for entry to this technology for other providers? Do we see a situation where it could become very fragmented, or do you see a consolidation phase as this goes on?

[Martha Hall Findlay]

Our history in this country has been of getting the value of standardization and ubiquity. We were world leaders in embracing debit. We're world leaders in embracing the use of the Internet even. There are a number of players in the business now. There's no barrier to entry, other than technological capability.

There are a couple of other participants in the world market. There are a couple of players that have a history of being SIM card manufacturers, for example, and they're involved in some cases in some of this technology. There are players out there. But speaking for EnStream, it's looks like we're doing a really good job. And once you do that, it seems to take off.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Are there other comments on that?

[Carolyn Burke]

Mr. Allen, if I may respond, I think the ultimate barrier to entry is the consumer. Are they being offered choice? Do they perceive it as safe and secure, cost-effective, and easy to use?

Technology can come up with many wonderful things, but if we as consumers don't find it easy to use and we don't have confidence in it, that's a real barrier to entry.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you.

[Cameron Schmidt]

The other barrier to entry is the cost to provide all the fraud protection and all of the security that is required. We do that across 193 countries, and in a regulated market that's not cheap. That's a lot of money to fund that day in and day out.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

We commented a little bit about the retailers and how this helps them keep their costs down, with respect to this and with less credit card usage. Have there been any hard studies or anecdotal evidence that would suggest the level of process savings that some of the retailers are experiencing—not just the cost of transactions, but in their actual business processes?

[William Giles]

Maybe I could weigh in with an answer to that one.

The technology we're deploying here is based on EMV, which is the chip technology. It builds on top of that contactless, but those are just the first stages because this infrastructure will enable us to do all sorts of new things that will help the processes and merchants.

One example might be the ability to check out within a store using an account that's on the Internet; those types of things. So I could walk down the aisle, pick up a piece of merchandise that I want, scan the bar code into my phone, check out on the Internet, and show the receipt on my phone on my way out the door. These are all things we're testing and demonstrating at the MasterCard labs that we run.

[The Chair, Conservative, James Rajotte]

You have 40 seconds if you have a quick one.

[Cameron Schmidt]

I'll just add one more comment similar to the last one, which is that the business process from a merchant's standpoint that can really be a cost savings for them is getting people through lines faster. So if you can blow more people through your store, that's a lot of money.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Allen.

We'll go to Mr. Rankin, please.

[Murray Rankin, NDP, Victoria, BC]

Thank you very much, Chair.

Welcome to all the witnesses, I appreciate your coming today.

I'd like to focus a few of my questions to Ms. Burke, if I could.

First of all, I want to say I appreciate your comment about how Canadians are leading in e-commerce and I'm very proud of that initiative.

You mentioned that currently there are no additional fees for mobile payments beyond those of apparently existing credit cards and the like. If I'm understanding it right, the merchant fees have remained unchanged thus far. We keep hearing, however, from merchants in a small business context who are very concerned about the credit card rates. You spent a lot of time stressing in your remarks the choice for consumers, but I didn't hear a lot about choice for merchants.

I understand that Royal Bank, for example, has a number of different premium cards and other cards that are offered with varying interchange rates and so consequently a merchant really has to accept those cards. And correct me if my premises are wrong. So for an RBC branded card, they really are not aware, often, of how much they are having to pay. Is that an accurate statement?

[Carolyn Burke]

No, I do not believe that's an accurate statement.

The merchant's acquirers would have to inform them and in fact the level of disclosure that's required has increased. I'm sure you're aware of the Commissioners Guidance 10 that came out in the fall; it is much easier for merchants to shop around and find a competitive offer.

At RBC, we have 25% of Canada's small businesses that we bank. We are most concerned that the payment system remain in balance, and that Canada, collectively, invests in the electronic frontier.

So as we looked at small businesses and as we looked at our solution, which is a secure cloud, we were not prepared to introduce that secure cloud solution until we had Interac debit on there as well as credit. We did not want to force consumers to choose the credit card in their wallet, if they would normally pay debit.

[Murray Rankin, NDP, Victoria, BC]

But isn't it the case that the merchants—at least in my riding I keep hearing this—have to accept the premium cards? They frequently claim that they don't know what the actual rates are. You say that they're given paper on that, but certainly the information I receive from small business is extreme frustration.

Like my colleagues, I don't even use my premium card in small businesses because I realize that I'm punishing them to do so.

Ms. Hall Findlay used the expression—I thought very accurately—of utility, that's what these mobile payments are ultimately becoming. Doesn't that suggest to you that the industry needs government regulation like other utilities, to make sure that there's a level playing field for merchants and consumers?

[Carolyn Burke]

Let's take a look at it from a consumer perspective, though.

You've chosen to use your Interac debit card in those circumstances and I think we respect that choice, and certainly the CFIB would assist merchants in making consumers aware of that choice.

There are occasions, though, where a credit card and an Interac debit card have appreciably different benefits to consumers. A credit card does offer purchase protection for consumers, it offers you insurance protections, and it offers you—

[Murray Rankin, NDP, Victoria, BC]

But with respect I'm not talking about consumers, I'm asking you to reflect on the reality for merchants. That's a very different proposition.

[Carolyn Burke]

It has been shown that merchants have a higher level of spend when consumers present credit cards and even higher when they present premium credit cards at point of sale. It's our intent to allow merchants and consumers to choose what they would like to take and how they would like to pay and to accommodate both.

[Murray Rankin, NDP, Victoria, BC]

So that would mean merchants don't have to accept in the future, according to you, premium cards if they realize that will be more painful to them and their bottom line if they were to do so. Is that what you mean by choice?

[Carolyn Burke]

Many merchants do not accept credit cards. I frequent a Chinese takeout in my neighbourhood in Oakville, and I pay a 5% discount for cash. That's certainly their prerogative.

[Murray Rankin, NDP, Victoria, BC]

But if I use a Vanilla credit card without any premium versus a premium card, you're saying that you believe merchants should be allowed to only accept the Vanilla card and not be required to accept the premium card?

[Carolyn Burke]

That's not what I said, Mr. Rankin. What I said is that we respect the choice of credit and debit, and we accommodate both for consumers and merchants.

[Murray Rankin, NDP, Victoria, BC]

So you wouldn't accept the differentiation between the two.

[Carolyn Burke]

I believe the tribunal has already looked at that, and they have determined to maintain and honour all cards, as you know.

[Murray Rankin, NDP, Victoria, BC]

Finally, you mentioned that the RBC secure cloud is secure and behind your firewall, which I think is a terrific thing. Do you know whether other banks or other financial operations are having their data stored in a cloud that is under U.S. regulation, and therefore subject to the U.S.A. Patriot Act data protection concerns?

[Carolyn Burke]

I couldn't comment on that at all.