Evidence of meeting #138 for Industry, Science and Technology in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was visa.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

Darren Hannah  Senior Vice-President, Financial Stability & Banking Policy, Canadian Bankers Association
Balinder Ahluwalia  Senior Vice-President, Market Development, Mastercard Canada
Karl Littler  Senior Vice-President, Public Affairs, Retail Council of Canada
Jay Dorey  Head of Corporate Affairs, Visa Canada & Vice-President, Global Government Engagement, Visa Canada Corporation
Martin Leman  Vice-President, Strategy, Pricing and Interchange, Mastercard Canada
Charles Docherty  Assistant General Counsel and Vice-President, Legal and Risk, Canadian Bankers Association

The Chair Liberal Joël Lightbound

Good afternoon, everyone.

I call this meeting to order.

Welcome to meeting number 138 of the House of Commons Standing Committee on Industry and Technology.

I would like to ask all members and other persons joining us here in Ottawa to consult the guidelines on the use of microphones and earpieces in order to protect the health and safety of everyone, in particular our interpreters. I would also like to take this opportunity to thank the interpreters for the work they do.

Colleagues, you have received two requests pertaining to the committee's budget. The first concerns the study of Bill C‑27, for which a supplementary budget of $7,000 is requested, and the second concerns the study that we will undertake today on credit card practices and regulations in Canada, for which the amount of $22,000 is requested.

Is there unanimous consent to approve these budgets?

Some hon. members

Agreed.

The Chair Liberal Joël Lightbound

Thank you.

Pursuant to the motion adopted on Thursday, September 19, 2024, the committee is commencing its study on credit card practices and regulations in Canada.

I am pleased to welcome among us two representatives of the Canadian Bankers Association: Darren Hannah, senior vice-president, financial stability and banking policy; and Charles Docherty, assistant general counsel and vice-president, legal and risk.

Thanks for joining us.

From Mastercard Canada, we have Balinder Ahluwalia, senior vice-president of market development, who is accompanied by Martin Leman, vice-president of strategy, pricing and interchange. From the Retail Council of Canada, we have Karl Littler, senior vice-president. From the Visa Canada Corporation, we have Jay Dorey, head of corporate affairs.

Thanks to you all for joining us. As you know, you have five minutes for your opening remarks.

We'll start with Mr. Hannah for five minutes.

Darren Hannah Senior Vice-President, Financial Stability & Banking Policy, Canadian Bankers Association

Thank you for inviting the Canadian Bankers Association to appear this afternoon to participate in the committee's study of credit card practices and regulations in Canada.

My name is Darren Hannah, and I am the senior vice-president, financial stability and banking policy, with the CBA. I am joined today by Charles Docherty, vice-president and assistant general counsel.

The CBA represents more than 60 domestic and foreign banks, employing over 280,000 Canadians to help drive Canada's economic growth and prosperity. We advocate for public policies that contribute to a sound, thriving banking system to ensure that Canadians can succeed in their financial goals.

Canada has a well-developed payments system, and payment cards are an important part of that. In 2023, Canadians made 21.7 billion payments transactions to individuals and businesses. Of that total, credit card payments accounted for 33% or 7.2 billion transactions. They also play a central role in e-commerce, enabling retailers and businesses to accept payments for online transactions from buyers across Canada and around the world.

Canadians use credit cards primarily as a payments tool rather than a credit vehicle, and 71% of Canadians pay their balance off in full every month and, therefore, pay no interest. As a consequence, credit cards account for only 4.5% of household debt.

For Canadians who do want to take advantage of the credit facility, most issuers offer low-rate cards designed for customers who want to carry a balance. In addition, many issuers now also offer innovative instalment loan options where customers can elect to transform a card purchase into an instalment loan, often at a lower interest rate that pays off the purchase in full over a fixed term.

Canadian consumers like credit cards because they offer great value and real benefits. They're a secure payment mechanism, available at point of sale or online, with liability protections for consumers as well as features such as insurance or purchase security and warranties. They also provide tangible consumer rewards, such as discounts for gas, cash back for groceries, travel benefits or free movies or other entertainment options for the family. It also gives consumers the flexibility to take advantage of sales and store discounts to save money because they can buy when prices are low and pay later when they have money in their accounts.

The credit card business is highly regulated. Consumers with credit cards from banks are protected by Bank Act regulations that require, among other things, clear and simple upfront disclosure of rates, fees and terms printed in an easy-to-read summary box; a detailed statement of itemized transactions and charges, along with the amount you must pay by the due date in order to have the benefit of the grace period; rules on advertising; and limits on consumer liability in the event of fraud.

Beyond the legal requirements, cardholders are bank customers, and Canadian banks have a long history of working with their clients during challenging times. Most recently, during the COVID-19 pandemic, Canada's banks provided almost 1.3 million payment deferrals on credit cards, lines of credit, personal loans and auto loans, plus an additional 800,000 payment deferrals for mortgage clients.

For retailers, credit cards offer secure, assured payment; access to a huge cardholder base; the ability to accept payments online; and the ability to offer customers real-time credit for purchases, so sales can happen when the customer is in the store without the retailer having to take on any of the credit risk.

When combined with Canada's low-cost debit system, they form the foundation of Canada's affordable, reliable and innovative retail payments infrastructure. In a world where the price of almost everything has been going up, the cost of card acceptance has been going down. The most recent agreements between the government and the credit card networks will reduce interchange fees for small businesses by up to 27%. Building on top of prior agreements, the collective result is that interchange for small businesses has declined by more than a third over the last decade.

In short, credit cards offer security and value for consumers and retailers, and they do so within a robust regulatory framework that gives consumers peace of mind.

I want to thank you for inviting me here, and I welcome any questions you may have.

The Chair Liberal Joël Lightbound

Thank you very much, Mr. Hannah.

I will now turn it over to Mr. Ahluwalia from Mastercard Canada.

Balinder Ahluwalia Senior Vice-President, Market Development, Mastercard Canada

Good afternoon.

My name is Balinder Ahluwalia. I'm the senior vice-president and group head of market development for Mastercard Canada. With me is Martin Leman, vice-president of strategy, pricing and interchange. He is bilingual and is available for any questions in French.

Given the scope of your study, let me begin by explaining who Mastercard is and what we do. We provide the network and the technology that allow billions of cardholders to use their Mastercard at millions of merchants around the world and to have that payment processed safely and securely in the blink of an eye.

We are a B-to-B operation. Our customers are the banks who issue cards and the acquiring banks who contract with merchants to process card payments. We do not have a direct relationship with cardholders. Therefore, questions about interest rates, consumer fees, terms and conditions or debt should be directed to the banks. It would be inappropriate for us to comment on those matters and illegal to provide direction on them.

What we do set are interchange rates, which is point (g) in your study. Interchange is a fee paid by the merchant's acquiring bank, often called the payment processor, to the cardholder's bank to compensate for the value and benefits of card acceptance. It is the distinctive feature of the four-party model consisting of banks, merchants, acquirers and consumers. Mastercard is the network in the middle, with consumers and banks on one side and merchants and acquirers on the other. We set interchange to maximize participation—for our banks to make cards available and for merchants to accept them. Our priority in setting rates is to maintain a balance.

Mastercard does not receive interchange revenue. Were it left to merchants, they would want the benefits of card acceptance without paying for it, but that would make card issuance unattractive to banks. Were it up to the banks, they would want high interchange to maximize revenue, but then merchants would not want to accept the cards.

Interchange rates have been on a downward trajectory in Canada for nearly a decade. Rates for small businesses are set to be lowered again in two weeks. Under a new agreement finalized last year, Mastercard is lowering its interchange for in-store transactions to an average of 95 basis points for qualifying small businesses—those with an annual Mastercard sales volume below $175,000. This captures 90% of credit card-accepting businesses in Canada and means that the average interchange on a $100 in-store transaction is 95¢. Small merchants will also receive a reduction of 10 basis points for online transactions, providing a savings of $1 billion over the next five years from the Mastercard network.

Since 2015 our rates have dropped by 24%. The previous reductions delivered over $2 billion of savings on Mastercard transactions alone, and with these latest reductions will provide a total savings of $3 billion for merchants. I would imagine that the savings from our main competitor would be similar, so this together would be consistent and significant.

There are two additional points to highlight. First, we understand the attention on fees for credit cards, but we must not lose sight of value. Merchants derive great value from credit card payments, including increased sales, guaranteed payment, access to the online marketplace, enormous efficiencies compared with cash or cheque and, at the most basic level, not having to run a store credit system.

Second, interchange represents a portion of credit card fees. Reducing interchange is an inefficient way to put money back into the pockets of small business. To help small businesses thrive, they need support in digitization, cyber-awareness, data insights and tools to action them. Insurance Bureau of Canada research tells us that 47% of businesses don't allocate any operating budget to cybersecurity, yet when they suffer a cyber-attack, it costs them nearly $100,000. That's why, with our latest reductions, Mastercard committed to providing free cybersecurity resources to all small businesses to safely expand their digital adoption and online presence while minimizing the risk of a cyber-attack. We've also prioritized partnerships and education that help small businesses increase their cyber-readiness.

We believe initiatives like this are more impactful than simply reducing interchange.

In conclusion, as our payment network evolves, we continue to support our critical stakeholders—banks and consumers on one side and acquiring banks and businesses on the other. Their success is our success, which is why we work so hard to find a balance in the system.

Thank you for your time. We look forward to any questions.

The Chair Liberal Joël Lightbound

Thank you very much, Mr. Ahluwalia.

I will now turn the floor over to Mr. Littler, from the Retail Council of Canada, who is joining us by video conference.

The floor is yours, Mr. Littler.

Karl Littler Senior Vice-President, Public Affairs, Retail Council of Canada

Thank you for the opportunity to present a retail industry perspective on credit card payments.

I want to begin by putting a big number in front of you. That's the $60 billion in credit card interchange fees that will be pulled out of Canadians' wallets over the next five years. When you contrast that with the roughly $200 million a year of savings outlined in the government's and networks' announcement last week, you can see how very little is being done to address the interchange problem for consumers. Simply put, 98%-plus of the issue is not being addressed at all.

Let's take it from the perspective of a Canadian family. Credit card interchange costs Canadian households an average of $643 each year or $10.7 billion all told. Last week's response by the government might save them $13 of that $643. It's our position that a savings of only one-fiftieth of the cost is flimsy by any standard, and Canadian families could really have used that help with affordability.

The Bank of Canada sees it as a consumer issue, as does the Competition Bureau, as does every competent authority worldwide, including central banks, competition bodies and academia. Only the Government of Canada seems determined to paint it into a corner as a small business issue, presumably because that makes it less unsettling to the banks and credit card networks.

Not only does that $60 billion in bank revenues weigh heavily on Canadian consumers, it does so in a particularly regressive way. The highest credit card interchange is on premium and superpremium cards, typically those held by Canadians with higher incomes, but the cost for all of this gets passed on in the price of goods borne by all Canadians, including those paying with cash or debit and especially by low- and modest-income earners. Don't take my word for this, you can look at studies by the Bank of Canada and by the Consumers Council of Canada. Many of those lower-income and modest-income customers would never have qualified for those high-fee cards in the first place. It's a kind of reverse Robin Hood problem, with the card companies and banks taking from the poor and giving to the relatively wealthy.

Continuing to perversely portray the problem as a small business issue rather than a consumer issue perpetuates this regressive and growing problem. At an average rate of 1.4%, interchange in Canada is amongst the highest in the world—make no mistake. By comparison, credit cards in Australia have a capped average of 0.5%. The U.K. rate is fully capped at 0.3%, as are all of the 27 countries in the European Union. Rates have also been capped in other jurisdictions like Switzerland, Israel and China, all at around one-third the level we face here in Canada.

Remarkably, the same card networks manage to operate globally at a fraction of the cost imposed on Canadians, both businesses and consumers alike. In a nutshell, Canada needs to address the $60-billion elephant in the room, stop pretending that this is only a small business issue, echo the pro-consumer approach taken by other countries and introduce a meaningfully lower interchange cap or average, whether through regulation or through much more purposeful negotiations with the credit card networks.

Thank you.

The Chair Liberal Joël Lightbound

Thank you very much, Mr. Littler.

I now turn the floor over to Mr. Dorey, from the Visa Canada Corporation.

Jay Dorey Head of Corporate Affairs, Visa Canada & Vice-President, Global Government Engagement, Visa Canada Corporation

Thank you for inviting Visa to speak to the committee's study today on credit card practices and regulations in Canada—

3:55 p.m.

Conservative

Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Pardon me, Mr. Chair.

The Chair Liberal Joël Lightbound

Thank you, Mr. Généreux.

Mr. Dorey, I believe your microphone is muted.

We can hear you more clearly now.

Thank you.

3:55 p.m.

Head of Corporate Affairs, Visa Canada & Vice-President, Global Government Engagement, Visa Canada Corporation

Jay Dorey

I'll begin again.

Thank you for inviting me to speak to the committee regarding its study of credit card practices and regulations in Canada.

To begin, I thought it might be useful to provide some comments about Visa and our role in the Canadian payment system. I would also like to share some information about interchange, which your study references directly.

Visa has operated in Canada for more than 55 years, supplying Canadian consumers and merchants with one of the most advanced and safest payment networks in the world. While Visa's brand is very well known, many do not understand what Visa does. For example, Visa does not issue credit cards to consumers. It is financial institutions, including banks, fintechs and credit unions, that issue credit and debit cards, set interest rates and consumer fees, and compete to offer rewards and other benefits to consumers. Similarly, it is acquiring banks, not Visa, that sign up merchants to accept card payments. They compete for business based on the services they may offer and the fees they charge.

Visa's role in the system is to maintain a safe and secure payment network, which enables consumers and merchants to transact securely and conveniently. This supports commerce and economic growth across Canada and around the world. When consumers choose to use a Visa card and merchants choose to accept it, they do so with the confidence that their transactions will be processed efficiently, reliably and securely. They also receive the rights, protections and benefits guaranteed for every transaction on the Visa network.

Visa makes significant investments in this network for security and fraud prevention. Over the past five years, Visa has invested over $11 billion in technology, including systems to reduce fraud and enhance cybersecurity. What this means for consumers and small businesses is that Visa blocked $40 billion in fraud in 2023. That's almost double the $23 billion we blocked in 2022. With respect to consumer protection, Visa cardholders rely on our zero-liability protections for unauthorized and fraudulent transactions, or if they receive counterfeit goods.

The Visa network is designed to level the playing field between small and large merchants. Every merchant that accepts Visa benefits from our investments in security and innovation, and can transact securely with billions of Visa cardholders across the globe and know that they will get paid, because Visa stands behind every transaction. By connecting to our network, any small-town or rural store, or any small e-commerce site, benefits from Visa's world-class security and fraud-fighting tools so they can better compete with even the largest retailers and technology platforms.

I also want to provide some information about interchange. Interchange is set by the card networks, such as Visa, but it is paid by merchant-acquiring banks to the banks and financial institutions that issue credit and debit cards. Visa does not earn revenue from interchange. Our goal in setting interchange is to foster balance, security and investment in the payment system. The revenue that fintechs, credit unions and banks generate from interchange ensures they can make the necessary investments in innovation, security and consumer benefits that enable the payment system to operate, grow and adapt. Interchange is also used to promote acceptance, security and innovation by merchants. For example, we set lower interchange rates for transactions that result in lower fraud.

In Canada, Visa has entered into a series of agreements with governments over the past decade with respect to consumer credit interchange. These undertakings have delivered significant reductions for every merchant in Canada, with particular emphasis on reductions for small business. As a result, Visa Canada's overall interchange rates have declined since 2015. Interchange rates for small businesses have been reduced the most. In fact, a further round of reductions for small business will go into effect October 19. These additional commitments will benefit 90% of Canadian small businesses, lowering interchange to an average of 95 basis points—slightly less than 1%—for in-person transactions.

We're proud of the role Visa has played in developing and delivering safe digital payments to consumers and merchants across Canada and around the world. We take our role in the payment ecosystem seriously, and we're deeply committed to delivering value and keeping the trust of those we have the privilege to serve.

Thank you for the opportunity to appear here today. I'm grateful that I can speak about these issues, and I'd be happy to answer any questions you may have.

4 p.m.

Liberal

The Chair Liberal Joël Lightbound

Thank you very much

Now, to start the discussion, I'll turn it over to MP Perkins for six minutes.

4 p.m.

Conservative

Rick Perkins Conservative South Shore—St. Margarets, NS

Thank you, Mr. Chair.

Thank you, witnesses, for appearing at the start of this important study.

My first questions are for the Canadian Bankers Association.

Can you tell me, by member institution of the CBA, what the return on equity of the credit card business is for each bank?

4 p.m.

Senior Vice-President, Financial Stability & Banking Policy, Canadian Bankers Association

Darren Hannah

No. I can't specifically for each bank, and certainly not by business line that way.

4 p.m.

Conservative

Rick Perkins Conservative South Shore—St. Margarets, NS

If you have access to that, can you pledge to table it with the committee?

October 7th, 2024 / 4 p.m.

Senior Vice-President, Financial Stability & Banking Policy, Canadian Bankers Association

Darren Hannah

I don't have access to it by business line.

4 p.m.

Conservative

Rick Perkins Conservative South Shore—St. Margarets, NS

I'm just talking about the Visa business, not—

4 p.m.

Senior Vice-President, Financial Stability & Banking Policy, Canadian Bankers Association

Darren Hannah

I understand that.

4 p.m.

Conservative

Rick Perkins Conservative South Shore—St. Margarets, NS

—the credit card business.

Does the CBA have access, through each of its members, to what the loan loss percentages are for the credit card businesses?

4 p.m.

Senior Vice-President, Financial Stability & Banking Policy, Canadian Bankers Association

Darren Hannah

We don't gather data like that by institution. I could tell you an aggregate—

4 p.m.

Conservative

Rick Perkins Conservative South Shore—St. Margarets, NS

Can you pledge to go and get those from your members?

4 p.m.

Senior Vice-President, Financial Stability & Banking Policy, Canadian Bankers Association

Darren Hannah

No. I can tell you an aggregate, though. The arrears rate for the credit card business writ large is about 1.6% currently.

4 p.m.

Conservative

Rick Perkins Conservative South Shore—St. Margarets, NS

That's pretty modest, 1.6%.

The next questions I have are for Mastercard.

I appreciate your presentation. Can you let the committee know, please, what your global revenue was last year?