Thank you, Mr. Chair. I appreciate the opportunity to appear before you today on behalf of TD Merchant Services.
Payment systems are obviously a complex topic, but I'm happy to do what I can to help explain the process and explicitly the role that a merchant acquirer plays within that system. In the simplest sense, as acquirers, we provide our customers with point-of-sale payment devices, the hardware that sits on the counter in a store, and we process payments on behalf of the retailer.
Major merchant acquirers, or payment processors, including TD Merchant Services, Moneris, Global Payments, Chase Paymentech, and Desjardins, provide essentially the same set of payment capabilities to merchants, but we compete with each other primarily based on two things: the quality of service we provide and the price we charge that merchant.
TD is the only Canadian bank that currently operates a merchant acquiring business. The reason for this is quite simple. We believe it is a relationship business and we appreciate having a direct relationship with retailers and business owners across Canada. In fact, more than 85% of my clients are also clients and customers of TD Canada Trust, illustrating this relationship aspect for us.
In terms of pricing, as the committee knows, interchange rates are set by the payment network companies—Visa and MasterCard—and they both make these rates available via their websites. Both have stated their intention to enter the debit market in Canada and have communicated the interchange rates associated with accepting those debit cards. Acquirers take these interchange rates, determine our own additional direct costs, and then develop a comprehensive fee structure that we present to merchants. The cost of interchange is by far the largest component of the merchant discount rate.
In the past, we presented costs to merchants via a simple, often all-in merchant discount rate—that is, the all-in cost a merchant would pay per transaction process. This was feasible as the interchange rate structure was simple at the time. The payment networks have since changed their interchange rate structures to a more complex model that has different rates for consumer, premium, and business cards, as well as for online or other card-not-present transactions. As a consequence, acquirers also revisited pricing approaches to merchants.
TD Merchant Services completed this task in time for the introduction of Visa interchange rates in April 2008, and this was a significant effort and was completed at considerable cost to my business.
This committee has heard testimony to date regarding transparency on the part of acquirers. As part of our submission to today's hearing, we provided the committee with samples of notification letters that we sent to clients to illustrate the approach we take to articulate any change in the merchant's processing costs. I'd like to highlight to the committee, as well, that these letters are from 2007 and 2008, before Parliament began its studies on this matter. Quite simply, it's the way we do business.
As illustrated in these letters, we introduced new fees or changes to current fees arising from the interchange rate structures made by Visa, and we provided appropriate examples to ensure that merchants understood the impact of these changes. At TD Merchant Services, we are proud to provide our merchants with what we believe is a clear and transparent statement of their monthly activity.
I've shared a sample of this statement with the committee and have highlighted the Visa discount rate adjustment box, which lists the number and dollar amount of all transactions for which a rate in excess of the merchant discount rate has been applied. This section of our statement also clearly identifies the type of card used—for example, an Infinite card or a commercial card—in plain English, not via the use of codes or other more obscure terminology. This section also identifies the increase in the rate associated with the processing of these transactions and the sum of the additional charges for each card type processed by that merchant.
To reiterate, I know some organizations have complained that there is a lack of transparency at some points in the payment process. From my perspective, I believe that clients of TD Merchant Services have a clear picture of the fees they are paying for the transactions we process on their behalf. In fact, delivering quality service and communicating with customers in a clear and transparent manner is a key tenet for both TD Merchant Services and the entire TD Bank Financial Group.
As an acquirer, TD will continue to bring the latest payment options to our merchants. However, as these options are introduced, history would suggest that in order to be viable, any innovation needs to create value for all stakeholders in the payment value chain, whether they be issuers, consumers, merchants, or acquirers, as without the acceptance of all of the parties involved, these innovations are likely to fail.
As change evolves, we will continue to consult with our customers, presenting new options to determine whether they are of interest to them, as well as educating and training their staff on how to use the new technologies. Throughout this process, we will continue to communicate clearly so that merchants know exactly what they're paying for and that they're getting value for their money. As payment processes continue to develop over time, TD Merchant Services will not change our strategy of offering customer-focused, price-competitive, high-quality services to our clients in a transparent manner.
Thank you, Mr. Chair. I'd be pleased to answer questions.