Thank you very much.
For a transaction to happen online, three needs have to be met: the need of the consumer, that of the merchant, and that of the bank.
Consumers need to go online and find something. Once they find it, they need to find it at a good price. Then they need to pay for it in a way that's safe and secure. Once they pay for it, it needs to be shipped to them in a timely manner.
What happens in Canada when consumers shop online is that they don't find products. It's very difficult to find a good selection of whatever it is you're looking for--DVDs, TVs, you name it. Specialty stuff, of course, is easy to find.
But suppose they find the TV they're looking for. The price is not good. We're going to talk about that when we come to the merchant side of the business, but the prices in Canada are not competitive at all. This actually restricts the merchants from marketing because they don't have much of a margin to work with.
Assuming the consumer is willing to put up with the price anyway and buy the TV, the availability of payment options at the checkout is minimal. In Canada, 89% of the payments happen by credit card. Canadians love Interac, but Interac is not available at all. Actually, debit cards in general are not available, because they're not network branded and available. So I will echo the comments about payment options: they're very restricted, and they're restricted by the banks, so there's an issue that needs to be addressed.
Also, then, shipping costs are a problem. Whether you're shipping to Canada, across to the U.S., or to anywhere in the world, our costs of shipping are extremely high, so consumers tend not to complete the checkout process.
When you look at the main issues on the merchant side, you see that one issue is the cost of actually doing business online, primarily because of payments. A mid-tier merchant like DNA 11, here in town, has to pay a deposit of about $100,000 for a credit card processor, in holding fees for fraud. Now, know that DNA 11 actually is a DNA company, so it's as safe as it can get online; I mean, you can't get anything safer than somebody processing your DNA. But because of the way the banks select merchants, or pick them, the costs have to be incurred.
So it's very hard for small or medium-sized merchants to actually set up in Canada, and once they do, their cost for a credit card transaction is about 3.5%, which is high. Let's compare that to the U.S. As a mid-tier merchant in the U.S., I actually don't have to chase the credit card processor. What I do is go to one of the many sites and submit my volume online. They bid on my process, the way you get a mortgage here, and I get a rate. For DNA 11, I'm giving you actual data: it's 3.5% in Canada and 1.9% in the U.S. It's the same business, with the same customers. It's almost unfair. So because the price is so high just for payment transactions, they can't be competitive. Imagine this in the electronics world: that cost cannot be borne because the margins are so low.
Next is the issue of shipping. In Canada shipping is expensive because of the distance, of course, but even for shipping across the border.... When I grow as a merchant, I have to ship across the world. My customers could be mainly in the U.S, and when you ship, your costs are not only for shipping.
Some of the credit card companies levy a foreign trade fee on top of those costs--about 6%--just for the luxury of shipping to the U.S. What many Canadian merchants actually do is rent a truck, put the equipment or product on it, and send it to Ogdensburg, where somebody actually processes it and ships it to the U.S. Eventually, when you grow big enough, you move. DNA 11 just rented a big facility in Vegas. As well, Cymax, out of Vancouver, moved to the U.S., as did Coastal Contacts out of Vancouver, and so on.
Once you move to the U.S., the problem is that you cannot process anymore in Canada, because your main focus is the U.S., and that's where your market is. Your selection ends up being less...it's a vicious cycle for Canadian merchants, especially the small and medium-sized ones.
I'm running out of time. If you have any questions, I'll take them, but the equation is not balanced, and it's fairly heavy towards the banks in Canada.
Thank you.