Industry Committee on Oct. 7th, 2024

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

So Visa has never requested money from the federal government to invest in cybersecurity.

Mr. Ahluwalia, Mastercard made a profit of $11 billion last year and received $50 million for cybersecurity in 2020.

Incidentally, what happened to that grant?

Visa has done the same thing in cybersecurity but has never requested or been offered any subsidies.

[Balinder Ahluwalia]

The cybersecurity centre is an important centre of excellence for us. It's something that drives innovation. It's something we can all be proud of.

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

That's not the question I asked you.

You made a profit of $11.2 billion last year and received a $50 million grant four or five years ago to establish a cybersecurity centre.

Mr. Dorey, has Visa established a cybersecurity centre in Canada that's similar to the centre that Mastercard has built in Canada?

[Jay Dorey]

Not in Canada. Our investments in cybersecurity, much like Mastercard's, are global, so our cybersecurity centres are based in other places around the world.

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

I see.

Mr. Ahluwalia, Mastercard received a grant to create some 380 jobs. Are those 380 jobs still in Canada now that the grant has been awarded?

[Balinder Ahluwalia]

I can get you the exact number, but we have a full office contingent in Vancouver.

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

All right.

We've learned in the past few weeks that there will be a 27% reduction in transaction fees per credit card. Please correct me if I'm wrong.

Has the government offered you anything in exchange under the agreement recently reached between credit card issuers and the federal government?

How can you offer a 27% cut in fees when that apparently wasn't previously possible?

Mr. Leman, can you answer that question?

[Martin Leman]

Thank you for your question.

You're right. The interchange rate cut, which will go into effect on October 19, amounts to a reduction of roughly 27% on in-store transactions for 90% of merchants in Canada. That's the result of negotiations conducted with Canada's Department of Finance.

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

I see.

The government has been in power for nine years. Why wasn't this done previously?

[Martin Leman]

Actually, it was done. An agreement was reached in 2014 and implemented in 2015. Another one was reached in 2018 and implemented in 2020.

Consequently, the current agreement is the third one designed to lower those fees. We're talking about a total reduction of 20% so far, in addition to the 27% cut that will be spread over a 10-year period.

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

The consumer representative told us that rates are much lower in certain countries such as England, France and Australia. Why do we still have rates that high in Canada? Is it because you have more power than the government when it comes to setting those rates?

If we've managed to reach an agreement to lower rates by 27%, why not cut them by 75%?

[Martin Leman]

It's dangerous to draw overly narrow parallels between markets. The European payment card market is based on a kind of credit card that requires the balance to be paid in full at the end of the month, whereas the North American market operates on credit cards allowing balances to be paid over a number of months or years. So the product types are quite different, and direct comparisons can't be made between the markets.

Furthermore, the benefits that accrue to merchants in credit card transactions are very different in Canada, where the average value of credit card purchases is nearly 20% greater than in cash or debit transactions. It's a completely different market context from what you find in Europe.

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

You mentioned Europe, but we also discussed Australia. It appears that fees are much lower around the world, as in Israel, than in Canada. Why? Surely it isn't just because people in certain countries use cards that require balances to be paid at the end of the month, whereas people in other countries can make minimum payments, as is the case in Canada most of the time.

Is that the only reason for such large differences in transaction fees?

[Martin Leman]

It's the main reason, and I agree with you that rates in Canada are much lower than in many other countries.

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

You say that rates are much lower in Canada, but my understanding was that they're much higher. We're talking about transaction fees here.

[Martin Leman]

Yes, that's what Mr. Littler said. However, when you asked me the question, you said that rates were lower in Canada. I can confirm for you that Canada ranks in the middle of the pack globally. Consequently, rates in Canada are much lower than in many other countries.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Généreux.

Mr. Gaheer, the floor is yours.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Thank you, Chair.

Thank you to the witnesses for appearing before the committee.

There has been a lot of discussion about transaction fees and other fees that are involved. I think there's a little bit of confusion as well.

I wanted to focus on the network assessment fee and the interchange rate. Both of those are actually set by the credit card companies, Mastercard and Visa, so I wanted testimony from both Mr. Ahluwalia and Mr. Dorey.

We know that the interchange fee is the small amount of money that a merchant pays when you make a purchase with a credit card or a debit card, and the fee will largely go to the credit card issuer. Again, it's set by Mastercard, Visa and others.

I want to say that some of the merchants, like grocery stores, gas stations or restaurants, have been known to raise their prices to cover that interchange fee. Could Mr. Ahluwalia and Mr. Dorey give testimony on the average interchange fees that Visa and Mastercard charge?

[Martin Leman]

As mentioned throughout this meeting, there are additional new reductions coming for small businesses in Canada, and the average rate for an in-store transaction, which would apply to the grocery store in your example, will now, going forward, be 0.95%.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

That is for businesses that I think have transactions with Visa worth $300,000 and with Mastercard worth $175,000, but for companies and merchants that have more transactions of a higher dollar value in credit cards, that reduction wouldn't quite apply to them.

Outside of that range, what's the average interchange fee that you guys charge? Do you know?

[Jay Dorey]

I'm happy to answer the question for Visa, if that's helpful.

I think you've heard from all of us here today that the market is fairly complex and there are many players involved in really any transaction. There's the issuing bank that provides the card. There's the acquiring bank or payment provider that provides services to a merchant. Then there's the network that sits in between, and there can be more players, as well, depending on what the transaction is.

Interchange is the fee that's paid to banks, and in Canada overall those rates are 1.4% on domestic credit card transactions. That includes point of sale and e-commerce. The new reductions that are going to be put in place for small merchants will produce an average of 95 basis points, or slightly below 1%. Some of those transactions will be above 0.95%. Many of them will be below 0.95%. The overall average will be 0.95%.

You also raised network assessment fees or the fees that Visa charges.... Oh, I'm sorry.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

I'll come back to that one after, if that's okay.

Mr. Littler, you have your hand up. I'll just come back to you as well.

Obviously, for small businesses, it's a big change. They're more likely to accept credit cards as payment because of the policy that our government has put in place.

Mr. Ahluwalia, during your opening testimony, you talked about how you have to set the interchange rates at a rate where the card issuer is likely to participate in this program. However, what I wanted to raise—and this has been touched on a little bit—is that, when you look at the Reserve Bank of Australia, it's set its credit card interchange rates at a weighted benchmark of 0.5% of the transaction value, with a ceiling on individual rates of 0.8%. When you look at the EU, it has caps for interchange rates of 0.3% for consumer credit cards.

I guess the point that I want to make, or at least the observation I'm making, is that the EU and Australia seem to be doing fine attracting different card issuers to participate in this program, so isn't there room for more improvement?

Isn't there room to lower interchange fees, yet still attract card issuers to participate in Canada?

[Balinder Ahluwalia]

Thank you for the question, Mr. Gaheer.

The reason I asked Mr. Leman to speak is that he leads interchange and pricing for us for Canada. Ultimately, I think we're very proud of having gotten to where we've gotten to, which is a 24% reduction over the last number of years.

We sit in the middle. As we were saying earlier, it's a job for us to balance the needs of our issuing banks with the needs of our acquiring banks from a merchant perspective. It's a delicate balance and I think we've reached a level where both sides are relatively maximized. I think we're proud of that.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

The observation that I'm making is just that other places seem to be doing fine with the lower interchange fee. We know that merchants like to pass on interchange fees to their consumers, so I think a conversation can definitely be had on where that balance should be set.

Mr. Littler, you had your hand up before. I don't know if you want to make a comment.

[Karl Littler]

Yes, it was two points.

One of them is.... I know Mr. Dorey is a very fair guy, but he said briefly that the 1.4% would be lowered to 0.95%. It most certainly will not be, as an average across the portfolio. I'd be surprised if it even got to 1.35%.

It will be lowered to 0.95% for in-store transactions for some relatively small businesses that are numerous but ultimately generate perhaps 10% to 15% of all retail sales in Canada.

You need to understand that, if you view it as a consumer issue and don't paint it into a corner as a small business issue, when those people are shopping, as somebody indicated earlier, at a grocery store or a larger gas station or whatever it will be, they will not be benefiting from that. It won't lower the average overall.