Finance Committee on Feb. 27th, 2014

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

If the consumer doesn't have one of those options, they have the choice not to buy.

[Corinne Pohlmann]

They do.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Okay, because I think that's what it comes to. If you have full consumer and merchant choice....

It's just semantics, but I'm still shaking my head over it. It would seem to me that it's almost a case of agree to disagree; like, if I can have a credit card and you have the choice not to accept it, that's fine, but the two are not compatible.

[Corinne Pohlmann]

No, and I'm not suggesting that they would be negotiating with the consumer. The choice for the merchant is the negotiation with the credit card companies so that they have a choice, i.e., that they will accept the credit card but not the mobile version of that credit card, or that they will accept debit but not credit.

That's what I'm saying. I'm not suggesting that they will tell the consumer....

They can influence the consumer and say, “Hey, if you don't mind, do you have maybe a debit card instead of a credit card? That would help me out.” If the consumer says no, they'll probably just say, “Fine, I'll take your credit card.”

These are the types of things that we'd like to see merchants—

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Okay. I think we've beaten this one to death. Thank you.

On the card-present and the card-not-present transactions and the 10% to 18% extra fee on that transaction, Mr. Wilkes, do we have any hard numbers on the amount of fraud that's being covered here? Is it 10% to 18% fraud? Is this fee reasonable, in your opinion, or is it exorbitant?

[David Wilkes]

The point we're expressing on the difference in fees is that we recognize that in those environments that are not secure there is an increased risk associated with those. But we believe that the associated risk does not transfer into a mobile environment, so because it is an authenticated payment and because there is security associated with the mobile phone, that should be treated as a card-present transaction, where you put in your PIN when you have a chip card, as opposed to whether it's being keyed in on the pad.

I think the point that the merchant community is making is that the risk associated with mobile is similar to, if not the same as, the risk with a chip and PIN card, and as a result the charges for that type of transaction should be similar.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

I think most of us here would agree with that, absolutely.

I still have a question on the card-not-present transaction and the 10% and 18%. If you're buying something over the phone because you didn't want to do it on your computer, and it's a card-not-present transaction, that would incur the 10% to 18% fee absolutely?

[David Wilkes]

Yes, we are not arguing with the fact that there is an increase with the card-not-present transaction, whether it's the examples that I provided in my opening remarks. The point is the one we made earlier.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

My original question was, is there any hard data to back up the increase in fees from the credit card companies?

[David Wilkes]

I don't have access to the amount of fraud on credit card transactions. I'm not sure if my colleague does.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

Very quickly, please.

[Darren Hannah]

I don't have it with me, but we have some data on the CBA website and we can make that available to the committee.

[The Chair, Conservative, James Rajotte]

Thank you. If you could provide it to the clerk, the chair will ensure all members get it.

Thank you, Mr. Keddy.

Mr. Rankin, it's your round.

[Murray Rankin, NDP, Victoria, BC]

Thank you, witnesses, for being here.

As a proud Canadian, I'm really pleased with the fact that we're world leaders in this mobile payment technology. On the other hand, when Mr. Saxton refers to this as a win-win-win situation, he certainly doesn't talk to the people in my riding, the small businesses, that call it perhaps a win-win-lose situation as far as small businesses are concerned.

Mr. Hannah, I understand that your members offer dozens of different types of credit cards. The Royal Bank, for example, has 17 different cards. With so many cards and so many different interchange fee structures that could be applied, just how can a small business owner reasonably know how much they're going to be charged for a transaction made with one of your member's cards?

[Darren Hannah]

That's a good question. I think the question you're getting at is really whether or not I feel as a merchant I'm getting value. I'll separate it into two streams. There's the value stream. First, they can opt for a flat rate, if they want, from their acquirer. They can usually negotiate that or go to a micromerchant firm like Square, where they build in a flat rate. In that case, every card gets charged the same rate. It may be higher in some cases than if you were to go to a mainline merchant acquirer, but—

[Murray Rankin, NDP, Victoria, BC]

The premium cards—and I'm sorry for time—the CFIB would seem to suggest if their members' data is accurate, that the premium cards are very unpopular precisely because (a), the fees are so much higher, and (b), they don't know. Usually when the banks come, they say it's not their fault, it's the acquirer's, but isn't it true that the TD says on its website that they are both an issuer and an acquirer, RBC and BMO say they're parent companies of Moneris?

There seems to be a lack of responsibility, where the banks say the problem's with the acquirers, but the banks own the acquirers in some cases, and we have a bit of a mess as far as small businesses are concerned. There's nowhere to go.

[Darren Hannah]

I'll start by saying that I think there has already been some questioning in prior discussions about the relationship between the merchant and the acquirers. I'm not going to go over that ground. You've covered that.

As you mentioned, there are a number of competitors in that market. A couple of them are related to banks; several are not. There's a lot of competition and there's new competition entering the market all the time.

To your question about the authority, the power of merchants, the ability of merchants to negotiate, the code of conduct that was created by the government gives merchants additional rights and clarity around pricing, the exact point you're talking about. They get clear pricing information and they get the right to opt out of contracts if prices go up. That was given to them in the code. It's enforced through the FCAC and the commissioner's guidance that has come out around these measures.

[Murray Rankin, NDP, Victoria, BC]

Thank you.

Ms. Pohlmann of the Canadian Federation of Independent Business, I have a question in a similar vein.

David Robinson of Rogers appeared before this committee on Tuesday. When asked how they plan on generating revenue with their mobile payments technology, this is what he said, “We do charge the issuer for the service of secure distribution, storage, and support of their payment cards on our infrastructure.” When asked how those fees were visible with the transaction, he said, “I have no visibility whatsoever to the transactional fees that are charged between the merchant acquirer and the merchant, none whatsoever.”

So, briefly, we were told there were no fees, then that there were some fees, and then that they're hidden from anybody. Is this the kind of hidden fees that get added through the payment chain that small businesses are already burdened with? Are they afraid that even more of this will happen in the future with this mobile technology?

[Corinne Pohlmann]

Yes, certainly I think there is a lot of fear, given what we saw with premium cards initially in 2008. Now that we have another player entering the mix, a telecommunications company, we know that's how they are making their piece of the pie. Right now, our understanding is that's being absorbed by the issuers, but there's going to come a point when I believe everybody will want to go back to the model where they're each getting their share of the revenues coming from the merchant. We find it really hard to believe. We feel as if right now it's a way to get into the market and over time, those fees will start going up because they simply have to start making sure that this next other player in this industry is also getting paid to the same degree that the banks and the acquirers and the networks are.

[Murray Rankin, NDP, Victoria, BC]

So you've added that you expect there should be the change you seek in this voluntary code, because of this confusion, complexity, and lack of clarity that could drive up the cost for the merchants in the future. I presume you see that as a consequence of the new mobile payment technology.

[Corinne Pohlmann]

Yes, and history has shown us that.... We've seen this play before, and I think the trust is not there that this will not happen in the future, so we want to make sure the protections are in place.

[Murray Rankin, NDP, Victoria, BC]

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Rankin.

Mr. Allen, please.

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

Thank you to our witnesses for being here today. We've had another number of interesting presentations.

Mr. Wilkes, I'd like to start with you. I want to talk about the cost of complexity, a piece that you mentioned, and then there were the barriers to entry, the standard platform, and those types of things.

In our first meeting, we were discussing the barriers to entry. Because of the security that's required and other types of things, not just anybody is going to be able to enter this market, because there's a certain barrier to entry just on that. What I'd like to ask is, when you talk about the standard platform, how would you see that happening? I can see there would be a certain number of players in. I can't imagine that we're going to have a big, diverse group in, because of those barriers to entry, so how would you see that standardization happening?

[David Wilkes]

I think indeed a role the government has is to ensure that. Let me give you an example. With iPhones, you can make web-based transactions on them right now, but you can't make mobile transactions on them. You have probably the biggest player in the smartphone arena and you don't have the ability to make a mobile transaction. What we're very concerned about is that we're going to have, as I mentioned in my opening remarks, various proprietary solutions. What that's going to do is add complexity.

My colleague here indicated that you may have a variety of different payment passwords, and so on and so forth. What we are very concerned about is that as you get additional platforms involved, as you get an Android platform, as you get a BlackBerry platform, as you get an iPhone platform, you're going to have a variety of ways in which these payments occur. You're going to have confusion within the marketplace, and you're going to have inefficiencies that, from a retailer or merchant perspective, only add cost.

We believe, as we have seen in other payment technologies, for example, with the chip and PIN, where MasterCard and Visa have come together with a similar or same platform on that, this should be a mandate that is asked for by the government in order to ensure standardization and efficiency in the mobile arena.