Evidence of meeting #28 for Industry, Science and Technology in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was interac.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Mark O'Connell  President and Chief Executive Officer, Interac Association

11:15 a.m.

Conservative

The Co-Chair Conservative James Rajotte

Thank you.

We'll go to Mr. Rota, please.

11:15 a.m.

Liberal

Anthony Rota Liberal Nipissing—Timiskaming, ON

Thank you, Mr. Chair.

Thank you, Mr. O'Connell, for coming out today.

You talk about a flat fee, and that's what the charge is, the switch fee, which is basically 0.8¢. There's no desire or requirement to change to a percentage or an ad valorem fee. The 0.8¢ is what you're charging. The bank then takes it and marks it up between 3% and 15% per transaction. What's to stop the individual banks from going to an ad valorem fee if they were doing business with you? Do you have some kind of agreement or restriction with the banks out there who are actually offering the cards to individuals?

11:15 a.m.

President and Chief Executive Officer, Interac Association

Mark O'Connell

You're referring to the acquirer marking up the fee, not the banks?

11:15 a.m.

Liberal

Anthony Rota Liberal Nipissing—Timiskaming, ON

Yes, the acquirers. You're charging a set fee. Do you have any agreements with the acquirers, with the individual banks or institutions who issue the debit cards, to restrict what they charge?

11:15 a.m.

President and Chief Executive Officer, Interac Association

Mark O'Connell

I think you're getting at a concern of mine. We publish our rates on our website each year, and that's—

11:15 a.m.

Liberal

Anthony Rota Liberal Nipissing—Timiskaming, ON

I understand that you publish them, but do you have an agreement with them that limits people from going to—

11:15 a.m.

President and Chief Executive Officer, Interac Association

Mark O'Connell

Yes. And in their contracts they have an agreement that any network fee charged is a pass-through to the merchant, and then they layer on their other fees.

I am concerned that we don't have that downstream visibility. There have previously been tactics, and this is what I'm getting at. It is so important that these contracts between the merchants and the acquirers are in clear language, that costs are divided overtly so the merchant can see what his or her acceptance decision is going to mean to their costs--

11:15 a.m.

Liberal

Anthony Rota Liberal Nipissing—Timiskaming, ON

Let me just take it one step further. We see this happening with a lot of the credit cards. We'll take it from the credit cards and bring it over for the Interac Association. As far as Visa and MasterCard are concerned, do you see these cards moving to a premium level or a loyalty card level, where there will be extra costs piled on to the merchants that eventually have to be passed on to the consumers? Do you see the cards moving to that area with increased competition?

11:15 a.m.

President and Chief Executive Officer, Interac Association

Mark O'Connell

I can't speak to the strategies of Visa and MasterCard, of course, as that is not currently under Interac's purview or planning. But of course we're the network, remember, in the middle. With respect to card rollout strategies and so forth, that's the purview of the issuer largely.

11:15 a.m.

Liberal

Anthony Rota Liberal Nipissing—Timiskaming, ON

Very good.

We talked about STAR and NYCE in the United States. What you're asking for basically is not much more than permission to restructure your governance model. That's all you're asking for. That's the main change.

Now for NYCE and STAR, what was their system of governance over there? Why did they suddenly drop in light of Visa and MasterCard's competition? What will prevent you from dropping just with a simple change in governance?

11:15 a.m.

President and Chief Executive Officer, Interac Association

Mark O'Connell

I hope it hasn't been lost. There's more than an internal restructuring of Interac needed with respect to how this debit marketplace evolved. So the level playing field I'm talking about, so consumers and merchants can overtly choose Interac, away from the competitors and their various pricing schemes and so forth, is imperative to our success, as are rules of the game. Interac being the only competitor in the market that is subject to scrutiny and review of all its new products sets, which we do today through the CPA, and the other competitors rolling out contactless and PIN-less products after a decision made in Purchase, New York, or Foster City, with not the same level of scrutiny or review, is a problem. So I am trying to talk well beyond the restructuring with respect to Interac's success.

You talked about STAR and NYCE. In answer to a previous question...they were private and then became public companies. The difference between our two strategies and our two markets--and as I said, it's a massive difference because this is a two-sided market--is that when Visa went in aggressively to the debit market, they were already there. They already had an acceptance base from coast to coast in the United States. So when that acceptance base is ubiquitous among all the brands, what happened there was that the competition shifted to how they could keep issuer cards within their brand, and unfortunately in STAR's case, their demise was when they started raising interchange to try to incent the issuers, because it was a card battle only. It's not the case here in Canada. You've heard prior testimony that one of the main problems for Visa and MasterCard--and we see it in their pricing strategies--is trying to get merchant acceptance.

So at Interac, I believe our restructuring, through partnering with the merchant community, can have a low-cost model, and if the merchants are architects of their own future in choosing Interac in the majority of the segments, I think we have a viable strategy with respect to Visa and MasterCard.

11:20 a.m.

Conservative

The Co-Chair Conservative James Rajotte

Thank you.

We'll go to Mr. Dechert, please.

11:20 a.m.

Conservative

Bob Dechert Conservative Mississauga—Erindale, ON

Thank you, Mr. Chair.

Good morning, Mr. O'Connell.

We've heard from merchant groups and other organizations that Interac is the lowest-cost form of payment to the merchant, even lower than using cash itself. I doubt that most consumers know this, however. I certainly didn't know it until I had listened to some of the witnesses.

As you may know, the finance committee is currently studying consumer financial literacy. Do you think merchants should make this fact known to consumers, and do you think it would be a fair or good idea for merchants to offer their customers a discount for payments using their Interac debit card?

11:20 a.m.

President and Chief Executive Officer, Interac Association

Mark O'Connell

I'm certainly in favour of informing consumers as to the cost of the debit and the electronic payment method. I don't know if it is only the merchant's responsibility to do that. I think all stakeholders in the market should be doing that and I think it would be good for the economy if that were to happen, because we'd take some costs out of the system.

11:20 a.m.

Conservative

Bob Dechert Conservative Mississauga—Erindale, ON

Does Interac have any plans to make that fact known to consumers?

11:20 a.m.

President and Chief Executive Officer, Interac Association

Mark O'Connell

If we had any marketing budgets I sure would. And I think it's important that you do find already in the merchant community...I'll bet that each of you at some point has run into a merchant who was beginning, as they do in the United States, to suggest a preferred brand to lower their costs. I get sent pictures all the time of signs going up, saying “Help us and use Interac Debit”.

So I think that groundswell is happening, and that underpins our strategy on the merchant acceptance side.

11:20 a.m.

Conservative

Bob Dechert Conservative Mississauga—Erindale, ON

I think if we all used debit a little more, we could probably reduce the costs of things, and that would be good for consumers and everyone in our economy.

As you know, since 2006 the Conservative government has lowered the GST from 7% to 6% to 5%. What impact did that sales tax reduction have on the volume of sales enjoyed by merchants across Canada and the volume of payments processed by Interac?

11:20 a.m.

President and Chief Executive Officer, Interac Association

Mark O'Connell

I'd have to take a look at that from a transaction standpoint and do some data mining to see if we could find a correlation with the date from a transaction, but I'd be happy to take a look at that to see if we can find it.

11:20 a.m.

Conservative

Bob Dechert Conservative Mississauga—Erindale, ON

If you can do it, I think it would be interesting to know. What is your guess? Was that a good thing for the Canadian economy?

11:20 a.m.

President and Chief Executive Officer, Interac Association

Mark O'Connell

I can't hazard a guess.

11:25 a.m.

Conservative

Bob Dechert Conservative Mississauga—Erindale, ON

Thank you.

11:25 a.m.

Conservative

The Co-Chair Conservative James Rajotte

There are two minutes left.

Mr. Lake, do you want to follow that up?

11:25 a.m.

Conservative

Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB

You've referenced the phrase “low-cost provider” several times, but I'm not clear on what definition you're attaching to that. I'd like to hear it defined a little bit more, especially as we talk about the future. You say that Interac will continue to be a low-cost provider, but I think my constituents, hearing that, would probably want to know what that means--low cost relative to what?

11:25 a.m.

President and Chief Executive Officer, Interac Association

Mark O'Connell

I say “a low-cost provider”. You've heard the testimony regarding MasterCard's current pricing strategy into the market. We have been historically, for 15 years since Interac debit began, a low-cost provider. No one can argue that 0.4¢ to 0.8¢ isn't low cost.

What I'm saying is that our strategy in the future is to offer a balanced value proposition going forward to maintain that primacy. I spoke of the need for us to partner with the merchant acceptance community. If I layer on too many costs--and internally I'm willing to open those books up to the federal government as far as any excessiveness is concerned--the merchants are going to begin to make a choice other than Interac and choose MasterCard and Visa.

11:25 a.m.

Conservative

Mike Lake Conservative Edmonton—Mill Woods—Beaumont, AB

But the question I have, and the concern that some would have, is that for low cost right now, at 10¢ per transaction, or if you were to be at 12¢ in the future, that would be low cost in one way. Another way of looking at it would be that if a competitor is charging 2.5% and you're charging 2.25%, that would be low cost in a completely different way. Maybe you can shed some light on which way you're talking about that.