Evidence of meeting #13 for Industry, Science and Technology in the 41st Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was card.
A recording is available from Parliament.
NDP
Hélène LeBlanc NDP LaSalle—Émard, QC
Could you elaborate on that? What is the success rate of small and medium-sized businesses as far as adopting new technologies goes?
President and Chief Execuive Officer, CANARIE Inc.
We implemented a pilot program earlier this year. Currently 25 companies are using this pilot program, and all of those companies are now using cloud computing techniques. They had never used cloud computing techniques before.
It's a small sample size. It's a little bit difficult to extrapolate from that. Our hope is that over the next five years, with the extension of our mandate, we will be able to assist 3,500 ICT companies, and that those companies in turn will deploy technologies into non-ICT companies, increasing the rate of adoption of these technologies.
NDP
Hélène LeBlanc NDP LaSalle—Émard, QC
I am again speaking to the same two witnesses.
How would you advise lawmakers to act? There has been much discussion, there have been reports and so forth. What would you suggest in terms of programs that could help nudge small and medium-sized businesses in the right direction?
Conservative
President and Chief Executive Officer, Retail Council of Canada
Right now, we are studying the U.S. model. There, universities and colleges have these labs where they encourage students enrolled in bachelor's or honours programs in technology to do a work term in a small business. This is done through government grants, and those could be at either the provincial or the federal level. Everyone works together to offer these types of labs. This initiative benefits students, professors and small businesses. It is in place in the U.S., but not yet in Canada.
Conservative
Conservative
John Carmichael Conservative Don Valley West, ON
Thank you, Mr. Chair.
Thank you to our witnesses for your patience today.
I've listened to your testimony today, and that of some witnesses last week, particularly those from VISA and Mastercard, and it sounds to me like technology and the cost of technology is a growing issue for retailers. Security, it seems to me, from what I'm hearing, is a given today. I'm getting a lot of nods on the security issues. That was a concern I had early on. It sounds like we've taken care of that.
Early on in this study, cost to the retailers or cost to the users was identified as one of the significant hurdles in growing our economy, in growing the ability to do business on an e-commerce platform. Clearly—and I think Madam Brisebois has articulated this—the retailers bear the cost; it's not borne by the consumers. Consumer products tend to be governed by competition and competition dictates the margins.
Coming from that world, I think that retailers, to accommodate the technology, will absorb the cost. I'm trying to get a better grasp, first of all, on how great this hurdle is. When I hear 12¢ to 3% on the cost, I'm trying to understand why there is that disparity in the margins. I'm wondering if, first of all, you can help me with that.
Then, Madam Brisebois, if there are a couple of minutes left, maybe you could just talk to the cost issue as a hurdle, because I think we really have to get our minds around how to deal with that as a hurdle to the future.
Mr. Morris, I don't know if you can....
Vice-President, Enterprise Strategy, Interac Association
I'm not sure I can speak to the reasons for the 3% side of the 12¢ to 3%. I can certainly talk to the “few pennies to 12¢” side.
Certainly Interac has become a payment method that I think both sides--consumers on the one side and retailers on the other--have come to rely on greatly in their everyday lives. It's a product that we're able to deliver to the market not only I think as the most inexpensive payment option in this market—for a typical large retailer, say, 2¢ or 3¢ per transaction, and for a small retailer probably 10¢ per transaction—but also even on global levels. These are costs that are low by almost any international standard.
I think this has been what Interac has been about. We've heard a lot about costs at this table today. It's what we continue to look to as we talk about advancing into e-commerce, mobile commerce, and so forth. Part of the effort here is to continue to deliver service that is valued by merchants and consumers at cost points that are approachable for consumers and merchants.
President and Chief Executive Officer, Canadian Bankers Association
Well, I guess I'd say a couple of things. First of all, retailers do bear some of the cost, there's no question about that, but a lot of the cost for security and so on is funded by other parts. It's funded by the spread. So the costs are shared all the way around, but I take your point on that.
You talked about the Interac cost versus the cost of cards. Again, numbers are bandied about here. I encourage the committee to go online. There's a real nifty chart on the website of the CFIB, another business representative, that actually charts the costs of card acceptance. It's actually lower than 3%. They've done a very comprehensive...it is lower than that.
But remember: there are different products here. Interac, as was just said, is directly into the account. The money's there and you pull the money out. Credit cards are a credit product: you're extending credit. You're advancing credit to people and the institution is taking a risk. You have to price for that risk. There's a whole bunch of other things that go into that, but to compare the two.... They really are different products and people use them differently.
President and Chief Executive Officer, Retail Council of Canada
I loved that opening. He just opened the door for me here—
President and Chief Executive Officer, Retail Council of Canada
It is very difficult, then, to justify why VISA and Mastercard come before this committee--and before finance committees in the past--and say “Our VISA debit is 1% versus 2¢”. MasterCard.... That's the reason why retailers said no. That's why there's a code of conduct. There's no reason. Let's be honest here—it's my 10 seconds—they charge it because they can.
It's as simple as that.
Conservative
The Chair Conservative David Sweet
Thank you very much, madam.
We'll move on.
Mr. Caron, you have five minutes. Go ahead.
NDP
Guy Caron NDP Rimouski-Neigette—Témiscouata—Les Basques, QC
Thank you, Mr. Chair. I will be sharing my time with Mr. Thibeault.
I want to come back to the 12¢ it costs per transaction when the customer pays by Interac. We take for granted that that fee is not reflected in the selling price, but is instead absorbed by the retailer. Is that true? More and more, we are seeing—some consumers have come to see me about it and I, too, have experienced it—that retailers are beginning to charge different prices based on the payment card used. Do you think that is a direct result of this policy? What can we do to counter this phenomenon? If the selling price does not reflect the cost of the transaction and the consumer realizes this, it puts small and medium-sized businesses that use differential pricing at a competitive disadvantage.
President and Chief Executive Officer, Retail Council of Canada
It puts them at a huge competitive disadvantage. While everyone does not always agree, there is a consensus that overcharging is not a good business practice. Actually, even when the customer pays 5¢ instead of 1%, that cost is always included in the product's selling price, just as the employer's rent and labour costs are. What is worrisome is the percentage.
Mr. Caron, it is all the more worrisome because small businesses do not have the sales volume needed to negotiate better rates. Just imagine I am a small business owner and I charge my customers 10¢ a transaction when they pay with card X. If I had to compete with a very big company that benefits from a much lower rate, I would go out of business. So there is that issue. New technologies will probably be too expensive for small businesses. That is what worries us.
I am not saying they should not have to pay; the technology has to be paid for. But we need to have merchants at the table when new technologies and products available to consumers are being discussed.
NDP
Glenn Thibeault NDP Sudbury, ON
Perfect. I'll get right to it then.
I'll start with Mr. Morris. I think most of us here know what debit card co-badging is all about. Can you give me your views on that? Why does the current voluntary code of conduct for the credit and debit card industry prohibit debit card co-badging? Can you talk to that?
Vice-President, Enterprise Strategy, Interac Association
Sure. You're right that the code tackles the issue of co-badging directly. For clarity, co-badging is the co-residency of competing payment brands on a card targeting the same transaction. So two debit brands, for example, are on the same transaction. The code also addresses the coexistence of credit and debit functions on the same card.
In its wisdom the code is not endeavouring to regulate market outcomes and say “You shall price this way” or “You shall do this that way”. It is trying to establish a framework for healthy competition to allow merchants on one side of the equation to understand the costs of various forms of payment in clear contracts, and to be able to act on those with the ability to consciously select and opt into what they will and will not offer in terms of payments at the point of sale.
On the consumer side, it allows them to choose quite consciously and without confusion what cards to place in their wallet, and then what card to pull out of their wallet to make any given transaction.
I think the concern around co-badging has certainly led to the provisions in the code and what folks viewed as the unhealthy trajectory we were on. There was confusion on both sides. The consumer wasn't sufficiently informed with clear choices, and the merchant wasn't sufficiently informed and able to make clear choices that both of those would prevail.