Finance Committee on May 17th, 2021

[Erin O'Brien]

This legislation has been a long time in coming. It is a complex area. We've been working on it for a number of years. We issued a public consultation paper. In fact, there were two: the first one was back in 2015. There was a second public consultation paper in 2017, after which we considered comments received and adjusted our approach accordingly.

In addition to the public consultations, we have consulted explicitly with the provinces and the territories, not only in terms of our broad policy approach, but in terms of sharing the draft legislation with them as well.

You asked specifically, though, about our outreach with our colleagues in Quebec. We have a long, strong relationship with our counterparts at the Quebec Ministry of Finance. We've had several discussions with them over the years. We have shared the draft legislation with them for their comments and, as I mentioned in my response to the previous question, altered our approach to deal with two substantive concerns they had: notably, that we exclude provincially regulated institutions from the scope of the legislation, and that we include a recognition mechanism should any province or territory decide one day that they are going to stand up a similar oversight framework. In that way, we've addressed their two concerns. We remain in close contact with them, and have committed to continue that spirit of collaboration as we move forward in terms of developing the regulations and necessary guidance that will be required to stand up this legislation.

[The Chair, Liberal, Wayne Easter]

Annie, do you have anything further?

Okay, we'll turn to Mr. Julian and then Mr. Kelly.

Peter.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thanks to our witnesses for being here today. We appreciate your service during this pandemic.

I want to come back to the issue that hit so many small businesses in my riding and right across the country: the issue of payment fees as part of retail payments. Small businesses are just being relentlessly gouged. There has been a move for some kind of voluntary capping of these fees.

Within the scope of the legislation, or within what the finance ministry is looking at in terms of regulation, is any due consideration being given to capping those fees? Small businesses often end up, through retail payments, with huge percentages of their sales actually going to the big credit card companies rather than to their bottom line when they're trying to get community businesses going.

[Erin O'Brien]

With respect to the RPAA, there's nothing in this legislation that would give the government authority to address fees. However, there is a separate budget commitment that the government made within budget 2021, whereby it will negotiate lower fees with the credit card networks. It wants to ensure that small and medium-sized businesses enjoy the benefit of that fee reduction and, as well, that any fee reduction would not adversely affect the value of loyalty points associated with credit cards. That does fall under my area of responsibility, but it is not part of the RPAA legislation.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Where do you see that in terms of timelines? Small businesses are really struggling, as we all know. A lot of them in my riding and across the country have closed their doors. There's no other way to put it, with the gouging that is taking place with credit card companies that are taking 10% of the sales, sometimes higher. It makes the small business folks really struggle for the bottom line, both to establish themselves and also to maintain themselves.

Where do you see the timelines in terms of those discussions and negotiations? What is the deadline that the government has set on that?

[Erin O'Brien]

As stated in the 2021 budget, the government intends to come forward with next steps in time for the fall economic statement. We will be conducting consultations and will be studying this issue over the spring and early fall, and will come forward with a plan in time for the fall economic statement.

[Peter Julian, NDP, New Westminster—Burnaby, BC]

Thanks for answering my question.

[The Chair, Liberal, Wayne Easter]

We will go to Mr. Kelly, followed by Mr. Fast.

Pat.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you. My questions are right in the same vein as Mr. Julian's.

If I heard what you said correctly, that there's a plan to have a plan in the fall economic statement, that's as far as the government has gone in fulfilling the promise of reducing credit card merchant fees and their cost to small businesses.

[Erin O'Brien]

The government intends to outline the plan in the fall economic statement. That's correct.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Okay. It's a plan, as opposed to tabling legislation that would implement the commitment it made in the budget.

[Erin O'Brien]

We're giving due consideration to the critical paths and will be consulting in the near term. We will outline the plan in the fall statement.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

I have another point, then, on this. You made reference in your remarks on division 8 to increasing competition in this area, which is really because the key to better consumer experiences is choice. How will this increase competition in this area? The regulations you're contemplating, or the objectives of the regulations you're contemplating, may well be sound and necessary, but not likely to increase competition. When you add regulation to compel businesses to all conduct themselves with the same processes and procedures, you're not increasing competition and you're not likely.... I'm hoping to see something that will help out our small businesses, who pay the brunt of transaction costs in retail.

I'll let you just maybe address competition and what you mean by increasing competition.

[Erin O'Brien]

Maybe I'd start just by saying the payments sector—the ecosystem and the foundation of how that works—is based on trust. Right now, payment service providers in Canada, as I mentioned—card networks, digital wallets and others—are not subject to a regulatory framework. That can create a sense of uncertainty.

We've heard from payment service providers that that lack of certainty can affect business investment in terms of their sector. A number of payment service providers, which we call PSPs, welcome being brought under a regulatory framework, as it helps to increase that sense of trust, as well as partnerships and investment opportunities with the private sector, and even with the regulated sector—partnering with banks, for instance.

I'd also like to mention that this legislation is a necessary foundation block upon which the intention would be to open membership and access to Canada's core clearing and settlement infrastructure, which is operated through Payments Canada. Right now, it is only the regulated financial institutions that have access to that infrastructure. Payment service providers have to get access to those systems through the financial institutions, but the intention would be to broaden membership within Payments Canada, so payment service providers could connect directly to these core clearing and settlement systems. In that way there would be tremendous opportunity for greater innovation, developing new services and products, and competition.

[Pat Kelly, Conservative, Calgary Rocky Ridge, AB]

Thank you.

[The Chair, Liberal, Wayne Easter]

Is that it, Pat? Then we will go to Mr. Fast, followed by Ms. Jansen.

[Ed Fast, Conservative, Abbotsford, BC]

Ms. O'Brien, in your presentation, you used the term “safeguarding” in reference to the payment process. Is the federal government actually, in any way, stepping in as an insurer of transactions, especially in the case of a catastrophic failure of a payment service provider?

[Erin O'Brien]

That's a great question. I guess the short answer is no, but let me give you some context.

Currently there are no comprehensive rules that apply to payment service providers to safeguard end-user funds. Safeguarding will protect consumers' and businesses' funds against financial loss in the event that a payment service provider were to fail.

What the legislative requirement includes is a requirement by a payment service provider to hold user funds, their clients' funds, in a trust account, or they would have to obtain an insurance product or guarantee of some sort that would cover the end-users' funds, should the payment service provider fail or reach insolvency.

The other requirement is that payment service providers would have to hold client funds separate from their own operating funds. In this way, it would provide greater consumer protection and access to funds, should the payment service provider fail.

[Ed Fast, Conservative, Abbotsford, BC]

It's not a matter of the government insuring these payments, but it's a matter of putting in place very strict security requirements so that the resources are always there to satisfy the payment obligations. Is that correct?

[Erin O'Brien]

That's right.

[Ed Fast, Conservative, Abbotsford, BC]

All right. Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you both.

Ms. Jansen, you may wrap it up.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

When you mention these payment services, are you talking about PayPal?

[Erin O'Brien]

Yes, PayPal is an example. They would be one of many payment service providers operating in the country: PayPal, Apple Pay, Google Pay and card networks. There are several. In our best estimate, we believe there are approximately 1,500 payment service providers operating in Canada.

[Tamara Jansen, Conservative, Cloverdale—Langley City, BC]

Are there regulations like this in any other country? Do they exist, and if so, where?