Evidence of meeting #19 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was technology.
A recording is available from Parliament.
February 13th, 2014 / 4:10 p.m.
Conservative
Conservative
Conservative
The Chair Conservative James Rajotte
Okay. I just remind members to allow enough time for witnesses to answer.
Mr. Giles, please be brief.
Vice-President, Emerging Payments, MasterCard Canada
I'll be very quick. Some of the paperless options take costs away, but the traditional card, as I mentioned before, will not go away; so we'll still be having the traditional card in the market and the costs associated with that, and any additional costs of rolling out the mobile, including potentially rental of space on the SIM. So some of the new technology has costs associated with it.
Conservative
Liberal
Scott Brison Liberal Kings—Hants, NS
Thank you, Mr. Chair.
It's great to see you all, particularly Martha.
I have a question related to merchant fees. It's exciting to see the development of ubiquitous payment technologies and the adoption of them in Canada. That's largely a positive development. But the challenge that smaller merchants have in terms of these fees is quite significant. Larger merchants have the capacity to negotiate lower fees. It's very difficult for smaller merchants to refuse either mobile payments or a credit card, because consumers have the expectation that they're going to be able to use these ubiquitous technologies or approaches and do not want to be told by a small merchant, “I don't accept those”.
We're told by organizations, including CFIB, that in fact even with a Visa or MasterCard, a merchant fee applies. Not only when you acquire something is there a 3% fee—say, if you buy a pair of shoes and pay $100 and you use a card, as an example—but then if you take it back, there's another 3% fee, and the merchant still hasn't sold anything.
Is there no delta between, for instance, PayPal and Visa or MasterCard in terms of merchant fees? Is there potential opportunity for mobile payment providers to provide lower fees than the credit card systems currently?
General Manager, PayPal Canada
If I may, I'll start.
The PayPal business model is based upon a flat-rate fee to the merchant, and behind the scenes there is a blending of the various card types. So the merchants don't have to worry, for example, if everybody comes into their location and is using a premium card of some kind, or Amex, for example. They still get a flat rate. So we blend the various rates together and offer a flat rate to consumers, which is quite a big benefit to them. They don't have to scramble around trying to figure out what, in fact, they're paying in terms of rates. That's how we address it, and we haven't changed that in years.
Liberal
Scott Brison Liberal Kings—Hants, NS
Does it have the capacity, then, to actually reduce merchant fees for—
General Manager, PayPal Canada
In a sense; the example I was implying is this. Imagine you have a merchant, 100% of whose consumers come in and use Amex or some premium card. That rate is far above the base rate we charge them, and we eat that, in a sense. So in that sense we are offering that value to them. Conversely, if people come in and are using just a blend of different cards, then it's hard to judge whether it's a benefit or a relative cost.
Vice-President, International Cards and Canadian Regulatory Payments, Royal Bank of Canada
I was a home-based female entrepreneur merchant 20 years ago, before I could use credit cards online. The time it took me to collect from many of my clients, and the NSF cheques I received, made the company go into receivership, quite frankly. So I look at the actual value of collections and surety of payment.
Also you've all seen the issue that happened with large U.S. retailers over the holidays. Compared with the U.S., as we look at Canada, we see that we've collectively invested in chip technology, and we have a much safer, more secure, environment. The U.S. retailers right now need to invest in their own encryption technology, so as not to lose data. That's a horrendous cost. As I look at the smaller retailers there, I see they are asking to pay more for mobile and more for wallet, and that's not what you're hearing in Canada, which I think bears witness to the fact that Canada does have a balanced, leading, electronic commerce infrastructure.
Liberal
Scott Brison Liberal Kings—Hants, NS
I would agree with part of that, because I do think we're advanced in terms of the adoption of mobile payments. But the challenge, again, is that we're hearing from organizations representing small businesses not to use credit cards all the time, but to use Interac cards, as an example. There's currently a campaign with CFIB encouraging Canadian consumers, and it's affected my behaviour. When I'm buying something from a small merchant in rural Hants county, Nova Scotia—and I know the margins they're getting are pretty small when buying gas for a car, or something—I use my Interac card now instead of my Aerogold card, as an example, because I know those fees are significant. We're hearing from the small-business owners that they're onerous.
Liberal
Scott Brison Liberal Kings—Hants, NS
It is a significant issue, and the degree to which you collectively can address it is one that is important to the small business community in Canada.
Martha, you said in your presentation, or we read in your presentation, that consumer profiling is a concern to some customers, but not to others. For consumers who are concerned about this issue of profiling, how do you inform them of the risks inherent in mobile payments?
Chief Legal Officer, EnStream
It's a great question. What we're seeing already in the market is that consumers at least want to have the choice. If they know that a certain retailer can offer them a tailored discount, for example, in a lot of cases they like that. A lot of consumers would prefer not to have that.
You'll see that newer smartphones, for example, have the ability to turn your GPS, your location services, on or off. On the older ones, you couldn't do that. That's a really important innovation in the technology to give consumers more choice as to whether or not they are going to give that data to others.
I know I have to be quick, and it's a longer answer, but we're all recognizing that consumers need to have, want to have, the choice to be able to do it, and that's a very important aspect.
Conservative
The Chair Conservative James Rajotte
Thank you.
Thank you, Mr. Brison.
We'll go to Mr. Keddy now, please.
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
Thank you, Mr. Chairman.
Welcome to our witnesses.
This is a fascinating discussion. I'm looking at it in more of the macro sense. I think what's happened here is that there's been some transformational change that's almost unrecognized.
Ms. Burke, to your comment on credit, all of us bitch about credit card fees and debit card fees, and I appreciate Mr. Brison's comment on using your debit card, which is using your own dollars versus using someone else's, but the difference it has made for small business is that they're not carrying the credit. That's been transformational. It truly has. A small business typically goes out of business when they fail because of cash flow. This difference actually gives to small business I think an advantage that 30, 20, or even 10 years ago they might not have had.
That brings me to the continuing transformation in this. I have to ask this question, because it popped into my head when you folks were speaking. You have 1.6 billion Visa cards and 1.9 billion MasterCards, or whatever the numbers were. We used to carry both, because you'd go to the States and they might not accept Visa. Or in a small town or somewhere else in the world, they might not accept your card. You covered that by carrying both.
This technology is going to make you not irrelevant, but close to it, because, quite frankly, I can use my smartphone to pay that bill. I may do it with MasterCard, I may do it with Visa, or I may do it with PayPal, but I don't need to have that card in my pocket. How's that going to affect your business down the road?
Vice-President, International Cards and Canadian Regulatory Payments, Royal Bank of Canada
Well, Mr. Keddy, at RBC, as I've said, we want consumers and merchants to have choice. So whereas today in your online banking or in your physical wallet, you have an Interac debit card, you have a credit card that could be MasterCard—
Conservative
Vice-President, International Cards and Canadian Regulatory Payments, Royal Bank of Canada
It could be Visa. It could be a store co-brand card. It could be a loyalty card. It should be as easy for you to use that wallet—with all of those cards—in the mobile sense as it is today online or physically.
Head, Mobile Innovation, Visa Canada Corporation
First, I think we're still going to compete in the way that we have always competed. I think you're still going to have multiple payment cards in your digital wallet the same way you have multiple payment cards in your physical wallet. It's essentially just a digital representation of the cowhide that's in your back pocket—
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
I'm not quite so sure that's the way it's going to work out, but I have another question, and that is on PayPal.
The other service that PayPal offers is a guarantee of your product.
Conservative
Gerald Keddy Conservative South Shore—St. Margaret's, NS
No one else really offers that. I can go on Amazon.com, buy with my Visa, and get my product. I can keep it, or I can send it back, or I can be dissatisfied. But if I use my PayPal account, you're telling me that the product is exactly what I'm buying.
