Industry Committee on May 14th, 2009

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Anyone who watches TV has seen this ad for Visa. There are two women shopping. One has the 2% cashback card, and on her $100 purchase she gets $2. The other woman apparently doesn't.

Who decides to offer that benefit?

[Tim Wilson]

That's a decision the bank that issues the card would have made themselves. They're the ones who run the ad.

You point out that ad, and it's a card that does offer richer rewards to the consumer, but interestingly, that is not a Visa Infinite card. So it does not attract a higher interchange rate. It was the issuer's decision to manage the business with compressed margins because of the higher rewards in order to gain more cardholders. Our cards that attract a higher Infinite rate, I should highlight, are very clearly labelled Visa Infinite, so that a merchant understands when they're seeing a card that it does attract the higher rate.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

I find that comment interesting in light of Mr. Sheedy's earlier comment. One of the reasons you said a merchant can't opt out of an Infinite card is because the Visa brand is on the door and people walk up and expect to be able to use a Visa card. Yet you also said that you're going to differentiate with the Visa debit product, and they can opt out of that. You have Visa products, and I imagine one would just have word “debit” after it. Someone walking up with their Visa card might expect to be able to use their debit card and be told no.

Why can't the same opt-out clause be included for Visa Infinite, which you just identified is clearly labelled Visa Infinite?

[Bill Sheedy]

That's a very good question and it's one that we struggle with quite a bit. I should mention, and I think I've testified, that Visa is accepted in 170 countries globally, and in the vast majority of those countries we have an honour-all-cards rule that applies to Visa, the brand. For any card product, any flavour of Visa that has Visa on the card, then merchants make a decision to accept all flavours of Visa or not, debit included.

What have we done in Canada? Since we have such a well-established credit business here and we are coming late to the debit business in Canada, we felt that consumers' perceptions around debit, when we introduced it under the Visa brand, would be clear enough that we could communicate to the consumer and the merchant in a way to minimize market confusion around the launch of Visa debit, so the decision was made that we could offer that choice. It would be beneficial to the merchants to be able to make that difference and choose whether or not to accept Visa debit.

[Tim Wilson]

I would like to add on to that.

You made an interesting observation about the Visa logo being posted in the store. We also have a requirement in Canada that when a merchant does make the decision to accept debit, a little debit tag be added below the Visa logo so that acceptance decisions are clear to consumers and there's no confusion.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Once again, I'm not quite sure I understand why you couldn't do the same thing with Infinite, given that your merchants have expressed concern in that regard. You talked about value to merchants and this premium card. I think that “value to merchants” is what you said. But shouldn't that assessment of value be made by the merchants themselves, as opposed to your saying that there's value? They're saying there's not, and you're saying there is. Shouldn't that be their decision?

[Bill Sheedy]

It's a fair question. I think the challenge is in the level of complexity and what can be achieved over nearly 30 million cardholders and 700,000 merchant locations. We have corporate cards that companies carry, we have cards that government employees carry, small businesses, Infinite cards, and core credit products. How many flavours of options could you provide at the point of sale without confusing the consumer?

In our experience--and we've been at this for quite some time--the Visa brand means acceptance, it means utility, and we feel that it's important that credit card holders, all flavours, know that they can use their card when they shop at the point of sale. If we were to go more granular within the credit category, it would confuse the consumer and result in our not being competitive with MasterCard, American Express, and other forms of payment.

[The Co-Chair, Conservative, James Rajotte]

You have 20 seconds. One last question.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

What you expressed is a very practical problem, and I totally understand it, but isn't that your problem and not the merchant's? The fact that there are all sorts of Visa brands and confusion, isn't that your business problem?

[Bill Sheedy]

I don't necessarily think about it as our problem. I think about it as a Visa brand promise and what it means.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

If you force them to take it, then it's not your problem.

[Bill Sheedy]

I do think that merchants benefit when consumers shop and have confidence with their Visa card at the point of sale. I think this is a benefit that goes to merchants. I can appreciate that at certain times they might want choice, and we try to give that to them when it's practical. But I think merchants are benefiting from the system every bit as much as cardholders do.

[The Co-Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Thibeault, please.

[Glenn Thibeault, NDP, Sudbury, ON]

Thank you, Mr. Chair.

I need some clarification and so I'll use a situation.

Suppose someone buys $100 worth of product or service from a merchant with a 2% interchange rate. Where does that two dollars go? Who gets what amount of that two bucks?

[Bill Sheedy]

I understand the question. I think we've already established that the 2% in your example is a bit higher than our average, but I feel compelled to point that out.

That $2 flows directly from the bank that has the relationship with the merchant—the acquirer, in our vernacular—straight through to the issuer. So it is a revenue stream to the issuer.

[Glenn Thibeault, NDP, Sudbury, ON]

You've stated that you don't receive any revenue from the interchange fee at all. You don't get your cut, I think, is what I've heard. So why does your company impose the initial interchange rate in the first place?

[Bill Sheedy]

I believe I've testified, and I'm happy to go over it.

The interchange rate structure is quite simple. We want to provide a rate structure that motivates banks to participate in issuing the cards, promoting them, and investing in innovation, along with a rate structure where, when banks sign up merchants, they can have a set of economics that are saleable to the merchant community to accept. The network works when cardholders see that merchants want to accept it and merchants see that cardholders want to use it. So it's that balancing act that we try to achieve when we establish the rate structure.

[Glenn Thibeault, NDP, Sudbury, ON]

Great. Thank you.

Jumping back to premium cards, can you talk a little bit about the basis upon which you decide a consumer is worthy of a pre-authorized premium card?

[Tim Wilson]

We've set very specific criteria around who would qualify for an Infinite card. It can be either an income test or a spending test, depending on the information that the issuer of the card has to work with. The cardholder would either have to spend a minimum of $30,000 per year on the card or, if we look at income, earn a minimum of $60,000 individual income or $100,000 household income.

[Glenn Thibeault, NDP, Sudbury, ON]

I have numerous examples in my office of seniors who are on a fixed income nowhere near that amount, who have Visa premium cards. I have another example—and I'm sure there are faults in the system—of a 17-year-old having a premium card, who has a 10-hour-a-week job at a local fast-food restaurant. There is a huge push, as we've heard from the CFIB and other organizations, to get these premium cards out there, and people are not having the choice anymore to keep a Visa Classic or one of the lower-interest Visas.

[Tim Wilson]

I would suggest that there is probably some misconception in the market about what a premium card is. I encourage you to look at the card and look for the words “Visa Infinite”. That denotes a premium card with higher interchange that has the specific qualification criteria attached to it. Other cards may look like premium cards. I've heard people assume that cards with the new chip technology are premium, that any cards with rewards on them are premium—for example, the ad that Mr. Lake referred to—but those in fact aren't cards that require cardholders to meet the specific criteria that we've defined for Infinite.

[The Co-Chair, Conservative, James Rajotte]

You have one minute, Mr. Thibeault.

[Glenn Thibeault, NDP, Sudbury, ON]

I have one minute now, and one of the things I tried to bring up in the last session was charities. We've talked a lot about retailers. As a former executive director of the United Way in Sudbury, I've often seen the goodwill of someone giving us $100 and then losing a portion of that to pay the fees.

CanadaHelps has brought here that it has gone from 1.6% in 2003 to 2.1% in 2009. They're having a hard time understanding why credit card companies must extract increasing annual profit from the goodwill donations of Canadians.

Do you have any comments on that?

[The Co-Chair, Conservative, James Rajotte]

Just briefly, Mr. Wilson.

[Tim Wilson]

I'd offer two comments. One is that for charities that have recurring monthly donations we offer a special rate that we call a recurring payments rate. The second comment is that cards deliver tremendous value to charities. They allow them to extend their reach and generate cost efficiencies.

I reflect back two weeks to my son's fourth birthday party. We decided we didn't want toys. We decided to set up a giving program at SickKids hospital. It wouldn't have been possible without the existence of credit cards. The $700 of donations that he generated through that program would possibly not have ended up with SickKids had we not had cards.