Industry Committee on April 30th, 2013

[François Lapointe, NDP, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Ms. Pohlmann, you have put your finger on a major problem. There is a lack of Internet service, especially in rural areas. In my situation, for example, when you are close to Quebec City, there is no problem. Prices are competitive. But the more you get into the mountains and the byways, the fewer the services. Sometimes you find a single service provider who asks for twice and three times the price you could get in a big city. We know the problem.

Are there any likely solutions to that issue? Could regulation, or some kind of approach, by the federal government help to reduce the difficulty, in your view?

[Corinne Pohlmann]

As I said earlier, I think there are different ways. We can perhaps encourage new technologies to move into those areas—I'm not an expert in this area either—such as satellite technologies and wireless technologies that could perhaps bring some competitive options into those more rural areas.

In addition, how do we encourage competitors to those larger incumbents, which tend to be the only ones in those rural areas, to perhaps take a chance in some of those particular communities? The only way to do that is to somehow keep their costs reasonable as well.

Right now, the only way they can get into those areas is if they can rent lines from the larger incumbents, and from my understanding—perhaps you need to talk to some of those folks as well—that can be very expensive for them to do. Then they are not able to provide competitive pricing to those rural communities. Therefore, it's almost impossible for them to even bother to enter those markets.

I mean, it can be a combination of factors. New technology is coming out all the time, and hopefully those new types of technologies will be able to expand into more rural markets at a more reasonable price. But we are a big country and those are some of the challenges we face.

[The Chair, Conservative, David Sweet]

Mr. McColeman, for five minutes.

[Phil McColeman, Conservative, Brant, ON]

Thank you, Chair.

Thank you for being here, witnesses.

I'd just like to pick up on the comments made by my colleague across the table that he believes in direct assistance to businesses.

Having been a small businessman in my previous life for close to 25 years, owning my own small company, being a member of the chamber, sitting on our board, and heading up the Ontario Home Builders' Association in the middle of the nineties....

With that frame of reference, that background, do your organizations support direct intervention by governments to assist businesses in acquiring technologies?

[Scott Smith]

I assume the question is for me?

[Phil McColeman, Conservative, Brant, ON]

Both you and CFIB.

[Scott Smith]

I can answer that in a couple of ways.

First, our organizations support the idea of government assistance. There are a number of companies that greatly benefit and that help bring things back to the economy because of government assistance.

That being said, the preference is for a more general application of tax incentives that are probably more effective and more accessible, that have fewer criteria and barriers to being able to access them. Most companies will go through their own accountants as opposed to going to government offices to try to apply for grants as opposed to a tax incentive, where it's either a tax deduction or a tax credit.

[Monique Moreau, Senior Policy Analyst, Canadian Federation of Independent Business]

We would support what Mr. Smith has said. For most of our membership, the easier it is to access the assistance, the more likely it is they're going to take advantage of it.

We have a saying at CFIB: we prefer that government doesn't pick winners but lets the businesses themselves try. They'll apply for a tax credit versus having to go through the complicated hoops, which can be quite expensive as well—for SR and ED, for example—and do what they can with the tax credit to improve their business.

[François Lapointe, NDP, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

If I may, Mr. Chair, I have a quick point of order.

I think there was an error in the translation, but I think that the witnesses understood me. I was mentioning the fact that tax support measures were more available to SMEs. I thought I heard the translation mention direct program assistance. I was talking about tax assistance.

[The Chair, Conservative, David Sweet]

Mr. Lapointe, that is nowhere near a point of order or procedure at all. It really is a part of debate here.

[François Lapointe, NDP, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

I cannot raise a point of order if something is badly translated?

[The Chair, Conservative, David Sweet]

Go ahead, Mr. McColeman. We'll start the time again.

[Phil McColeman, Conservative, Brant, ON]

Thank you.

I'd like to talk about the issue of cyber-security in terms of what businesses must look at when they adopt technologies. Is this an area for your members that concerns you? Do your members bring you issues about cyber-security?

I'd like your views on that and whether you're hearing anything back from small businesses on that particular front.

[Scott Smith]

We're certainly hearing issues around cyber-security. It comes in many forms. If we're talking about the anti-spam legislation, for instance, there are issues around cyber-security with what might happen if it's implemented the way it's written right now. There are also issues around cyber-security for the new bill that's coming through the House on anti-counterfeiting, for instance.

Am I hearing it with respect to the functioning of small business? Yes and no. It's not a major topic of concern within our membership. However, a number of associations that are part of the chamber network are certainly tackling that issue and have big concerns about it.

[Phil McColeman, Conservative, Brant, ON]

And at the CFIB?

[Corinne Pohlmann]

Yes. If you look at slide 10 of the deck I gave you, where we look at the obstacles to accepting electronic payments, the fourth one, at 26%, says “concerned with online security”.

We delved into this further. It's related to the fear that they become liable, of course, should there be customer information and so forth that gets stolen or is somehow not properly handled. I think that's part of it.

In addition to that, there's something called PPI compliance. Credit card companies have requirements now on businesses, when they accept credit card payments, that they must have a certain amount of security within their system. That can be very costly as well for businesses, depending on the volumes they transact.

All of these things add up as part of the online security issue, and add costs to the small business. It is an issue, I think, for much smaller firms, especially once they start seeing the e-commerce component of their business start expanding and they're starting to deal with higher volumes and more information, which they then become liable for.

Having the more sophisticated systems to make sure everything is protected is important. Again, that's where the costs come in. As I think Mr. Temple pointed out, it's an ongoing, growing investment that you have to make as you expand into this world. Obviously, having the resources to do that will be very important.

[Phil McColeman, Conservative, Brant, ON]

Thank you.

[The Chair, Conservative, David Sweet]

Thank you, Mr. McColeman.

We'll go on to Mr. Harris now for five minutes.

[Dan Harris, NDP, Scarborough Southwest, ON]

Thank you, Mr. Chair.

Just to go back to the last point about online security, that alone is the biggest hurdle most businesses face. It's a very scary thing, when you're not very Internet or digitally literate, to start even considering all the implications. Of course, the privacy requirements and then the requirements by credit cards and the banks for the type of security—the security certificates and going through all those hurdles—are actually far more cumbersome than even filling out government grant applications, which also can be cumbersome from time to time.

Earlier, Mr. Smith, you were talking about key milestones and the ability to measure success. If my colleague, Mr. Kennedy Stewart, were here today, he would be very happy to hear you say that because he really feels it is important for us to actually measure success and measure the efficiency and efficacy of programs that we put in place.

Going back perhaps to the credit card rates that CFIB brought up, there is of course that requirement to honour all cards and the increasing fees that come into play, and when you add an online payment component to that.... Have you done any research on how much more cost that brings to small businesses?

[Corinne Pohlmann]

It really depends, obviously, on the rates they are able to negotiate, but in addition to that, of course, is the cost of setting up the systems. No, I don't have any exact numbers of what that could look like, but certainly we know when premium cards were introduced into the marketplace in 2008, most of the calls—and we had hundreds of them coming in—were telling us that their costs had increased by 25% to 30% overnight, within one month. So this is a substantial issue for smaller firms, whose profit margins tend to be fairly thin to start with. That's why there is the concern now that a new form of payment coming into the marketplace may again cause these increases, which they've hopefully been able to stabilize over the last few years.

However, part of the issue has become that these fees are often not that transparent, so it's not always clear from month to month how much you're going to be paying, given all the different types of fees, which I won't get into here today. That can add up for a small business. But, relatively speaking, small businesses pay more for these types of transactions than larger businesses do simply because of sheer volume. So, again, it's a higher cost on smaller firms than on larger firms.

[Dan Harris, NDP, Scarborough Southwest, ON]

There's a bit of a double-edged sword that exists for small businesses that are looking to access the global marketplace because, yes, certainly that gives them potential access to far more customers, but it also forces them to compete with those much larger retailers that are able to negotiate better rates; that are able to negotiate better shipping rates; that are able to get, compared to small business, a more preferential rate all across the board just because of the volume they are dealing with.

For a small business also, with the “honour-all-cards” rule, you don't necessarily know when someone swipes that card what kind of fee you're going to be paying at the end of the day, and there are many different fees that you wouldn't think would be charged. If you go to a restaurant and you pay by credit card, then the tip gets a fee attached to it, and the HST gets a fee attached to it. So for things that have to be remitted to the government or by law have to be remitted to employees, such as their tips, the merchant is also going to be paying 2%, 3%, or 4% on that fee, which is absolutely incredible.

You talked about the code of conduct earlier. Do you find that it's effective right now the way it is, or do you think it needs improvements?

[Corinne Pohlmann]

We always knew when the code of conduct was introduced in 2010 that it would be a document that needed to be updated constantly. We do think it's in need of updating today, including adding some provisions around mobile payments, on which there have been some good consultations done and some good ideas, but we have yet to hear when that's going to be added to the code of conduct. We also believe we should have the “honour-all-cards” rule eliminated, as you mentioned. We also believe businesses should have the ability to surcharge up to the amount of the actual fee that they're paying.

Those are some of the additions we'd like to see made. We'd also like see a little more clarity around some of the activities of some of the players in the industry and the way they harass some of the small business owners in getting them to sign onto what we sometimes see as being fairly unethical types of contracts. And we believe there needs to be a dispute resolution process in place.

These are some of the areas in which we'd like to see some improvements in the code of conduct.

[The Chair, Conservative, David Sweet]

Thank you very much, Ms. Pohlmann.

Thank you very much, Mr. Harris.

Mr. Lake, for five minutes

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

Thank you, Mr. Chair.

I have a whole bunch of different directions I could go in. There was $350 million a year, I believe from Budget 2010, as a stimulus measure for accelerated capital costs for computers. The idea was to have a time-limited and targeted measure to encourage companies to make investments that would benefit them in the long-term, much like all of the stimulus program funding, knowledge infrastructure programs, and a lot of different programs, such as the RInC program.

It was time-limited for a reason, because we said as a government that we were determined to get back to budget balance by 2015, which we're on track for. I believe we will be one of the only developed countries to actually be running a balanced budget by 2015. How important is that to your members?

[Corinne Pohlmann]

To have a balanced budget?