Industry Committee on May 28th, 2009

[Mike Kitchen]

That was certainly the testimony of MasterCard. It's so small in Canada. There are not enough merchants for us to look at, but my understanding is that the testimony indicated that the pricing right now for Maestro is cheaper than for Interac. I know nothing else.

[Glenn Thibeault, NDP, Sudbury, ON]

In situations like that, how long can that rate stay...? That's the point, right? With credit card interest rates, it could be 1.9% with those introductory offers, and then six months down the road you're at 10%, 11%, or 18%. There's nothing regulating what MasterCard can do six months or a year from now in terms of where they want to bring these rates. This could be an introductory rate to get people used to it. Do you think that's a fair opinion?

[Mike Kitchen]

I think you'd have to take that up with them. I'm not qualified to comment on their actions. It would be inconsistent with their actions; the acquirers are setting up contracts with the merchants, so they wouldn't likely set it up in that fashion. I think they could provide you with some clarity on the nature of their contracts.

[Glenn Thibeault, NDP, Sudbury, ON]

Fair enough. Thank you.

I'd like to open this up to anyone who wants to answer. Can you explain why banks and credit card companies are able to benefit from the advertised incentives that are offered to consumers--insurance payback, products, etc.--and yet they don't have to finance any of those incentives, as the credit card processing and the merchants are ultimately the ones left holding the bag on that, so to speak? Can people comment on that?

[Cathy Honor]

I'm not sure I understand the question.

[Glenn Thibeault, NDP, Sudbury, ON]

Well, right now you have all these premium cards and incentive cards out there, and ultimately it's the merchants and the fees they have to charge to the consumers that actually pay for the incentives that you get when you get one of those cards. They pass that on to the consumers.

I'd like to hear your comments. How is it fair that it's being offered by--I don't want to single out anyone, but I can think of the Avion commercial just because I think it's quite funny, and then you've got the Scotiabank one. Those are advertising, I know, but could you please just comment on how it is fair to put those costs onto the merchants and consumers, when the cards themselves are being put forward by credit card companies?

[Terry Campbell]

Maybe I can take a first stab, and I think some of our members would like to comment.

First of all, I'd make two points. One is that there's a mix of costs and benefits across the system. As Ms. Hughes Anthony said in the opening comments, banks, individual customers, and merchants each have costs and each have benefits. Yes, the merchants pay the interchange, but they certainly get a range of benefits from that. They don't have to carry cash, they get immediate security of payment, and they don't have to set up their own credit adjudication system. It's all done for them. They get online payments and they get increased spend. There's a mix there.

In terms of the costs being all on one side and the benefits all on the other, if you look at what the banks have to do, you see that the banks have to fund all the costs of issuing the cards. They have to fund the costs of the systems and the interface with the network. They take care of all the fraud costs; last year those costs were half a billion dollars, and it's going up. They take care of the costs of the security system to enhance that. They have to take care of the costs of loan losses; the results of the banks are just coming out, and in some cases they're--

[Glenn Thibeault, NDP, Sudbury, ON]

I understand what you're saying, but if it's--

[Terry Campbell]

All of that has to be taken into account.

[The Co-Chair, Conservative, James Rajotte]

You have one minute, Mr. Thibeault.

[Glenn Thibeault, NDP, Sudbury, ON]

So if...but that's not getting me the camera that I'm going to get with my points, right? And that's being paid for.

[Terry Campbell]

Well, they have to fund those as well.

[Glenn Thibeault, NDP, Sudbury, ON]

Okay. Thank you for that.

Ms. Goulard or Mr. Whalen, we hear a lot from the banks in relation to interest rates and merchant fees. Are you hearing those same issues from the credit union side? Are these concerns coming to you from your customers and your card holders as well?

[Douglas Whalen]

We're much more active on both the debit card side and on the Interac side. In terms of fees and some of the things you were just talking about, credit unions themselves pay for those in terms of offering those types of services. So they do provide special features, such as fire protection, and those are paid for by individual credit unions.

We are hearing concerns from some credit unions, primarily around making sure that their Interac services will be able to compete on a fair, level playing ground. We are primarily issuers of Interac services, and we want to make sure--we are Canadian only, as is Interac--that it remains a strong player in the services marketplace.

One of the things we see in the move to chip cards is that in the move to chip cards, all those terminals get changed. That introduces the opportunity for new applications to come into the marketplace. We believe it's really important that Interac has the opportunity to participate, with those new applications that are going to come into the marketplace, on a fair and even playing field.

[The Co-Chair, Conservative, James Rajotte]

Thank you.

Thank you, Mr. Thibeault.

We'll go to Mr. McKay, please.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you, Chair.

I want to follow up on that question with the credit unions. It's pretty obvious that there's a bit of predatory pricing going on here in the debit card market by Visa and MasterCard in order to be able to crack into the debit card market. It's also pretty obvious that in the United States, the cost is three times what we pay here.

To be specific, what would you like to see this committee recommend in order to at least give Interac a fighting chance?

[Douglas Whalen]

Certainly there are two specific things, as we said in our address. The first thing is that Interac does need to change its governance model. As a non-profit association, it does not have the capability to develop new products and services. It needs to move to a new type of model that would allow it to have the capital and revenue necessary to develop products and services and get them out on the market and compete more effectively.

The second thing would be a review of the regulatory environment to make sure that any new payment scheme--Visa, MasterCard, Interac--is playing on the same field and is subject to the same regulatory requirements.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Would that include the lifting of the consent order?

[Douglas Whalen]

Yes, or the change to the consent order based on the discussions that are already under way between Interac and the competition.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you.

[The Co-Chair, Conservative, James Rajotte]

Ms. Coady.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Thank you very much.

Just on that line, I appreciate your comment about the regulatory environment around debit card issuance. I'm concerned about the fact that Visa and MasterCard, I understand, may be settled outside this country.

Is that your understanding as well, that they settle through Bank of America? Is that your understanding?

[Douglas Whalen]

In terms of making sure that they're all subject to the CPA rules, for example, yes, that would be one of the concerns.

[Siobhan Coady, Liberal, St. John's South—Mount Pearl, NL]

Your recommendation would be to use the CPA rules for any debit card provider in Canada?

[Douglas Whalen]

Certainly the issue is let's review the regulatory environment and make sure that all the payment schemes are subject to the same level and same type of regulatory rules.