Industry Committee on Oct. 10th, 2024

[The Chair, Liberal, Joël Lightbound]

You're three minutes over, Mr. Masse. Given that it's your study, you have credit on time here.

I'll take a minute to echo what you were saying, Mr. Masse, and ask a question of the Financial Consumer Agency.

I noticed that a lot of young people now turn to Reddit and other such platforms to seek advice and information on their credit and finances. Are you on Reddit or other such platforms, and is that part of the plan to reach younger Canadians?

[Dr. Supriya Syal]

Yes, we are tracking where people are going, and we're trying our best to be available in those places. We've also done national advertising campaigns over the last couple years.

During Financial Literacy Month, which is November, we work with stakeholder organizations across the country to proliferate the messages linked to financial literacy. Particularly because of the debt burden that Canadians have been facing in the last few years, we have targeted many of these efforts towards speaking to Canadians about debt and providing them with resources that may help them manage that debt better.

There's traditional radio. There are other forms of audio. There's social media, digital display and search engine marketing. All of these are channels we're trying to use to get to Canadians. There are also on-the-ground programs being executed by many of our partners on the ground.

[The Chair, Liberal, Joël Lightbound]

Thank you.

Madam Rempel Garner, go ahead.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

What I'm looking for advice on this morning is a potential area of study within this study. I'm not sure we've scoped it out as a committee, but it could be very impactful for recommendations.

A Globe and Mail article this week talked about payment processors. It dealt with one payment processor specifically, Stripe, Inc., and said, “Payment processor Stripe, Inc. says it won't reduce merchant fees on its standard plans despite Ottawa's recent deals with Visa and Mastercard that sought to lower transaction costs.”

My understanding is that you have your credit card issuers, you have your banks and merchants, and you have payment processing companies like Moneris, Stripe and Square. These payment processors are facilitating online transactions, but they're also charging fees and passing interchange fees along to merchants.

This article was saying that even if the government negotiates with Visa and Mastercard a right for small business, payment processors like Stripe could either change their fees or not pass savings along. Essentially, they would go to them as opposed to the merchant. Would that be an adequate assessment of the situation?

I'll start with the Competition Bureau. Have you looked at the competitive practices of payment processors? Perhaps you can give us some advice as to whether the committee should be looking at this issue in the scope of the study.

[Krista McWhinnie]

Thank you for the question. It's a good question.

In the case we brought before the Competition Tribunal, there is a detailed analysis of the various layers and where the fees come in. The main concern there was with the rules the credit card networks had in place. They were, we said, inflating merchant acceptance fees overall, because things like the no-surcharge rule reduced the ability for merchants to constrain those fees, which is what you'd expect in a properly competitive market. If prices are going up, they have an ability to constrain. Rules like that were getting in the way.

In our enforcement work, I'm not aware of specific concerns related to anti-competitive behaviour happening at the processor level. Also, as I said, it was the network operators at issue in our case.

It's a good question to try to separate between them.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

If the government has worked out a deal that could benefit small businesses and it isn't dealt with at the processing level, depending on how much a certain merchant uses a certain processor, it might not have a net effect. Is that right? Then there might need to be additional regulations on top of that.

I try to look for recommendations. Down the table, do you think this issue is something the committee should be looking at within the scope of its study?

[Geoff White]

It is one of the issues the committee should be looking at, but I stress that the main issue hurting Canadians is interest rates. It's the layering of debt instruments on top of other debt instruments. We're gorging ourselves at a buffet of credit. That's the problem. I know the criminal interest rate is coming down, but it's still usury, to use Mr. Perkins's term. It's still allowing a lot of crippling penalties. With payday loans, it's $17 per $100, so the answer to your question is yes.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

I totally understand that, and I agree with you. I just just want to focus on this issue with my time.

I'll look to Ms. Syal and Mr. Lofranco. Could the committee make a recommendation that there be greater transparency, perhaps by transaction, on the types of layered fees presented to either consumers or merchants in a statement, with standardized nomenclature used between payment processors, credit card issuers, etc.?

[Frank Lofranco]

I think it would help the committee to understand our role in this space. That might help with your deliberations moving forward.

We have a critical role to play with respect to the protection of consumers and the protection of merchants. In the world of payment networks, we supervise compliance with the code. The code has many provisions that represent market conduct obligations. Our supervision is direct to the payment card network operators. Those payment card network operators have an obligation to ensure proper market conduct practices downstream, as we call it.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Then it would be fair to say you're not best positioned right now to answer that question, but perhaps we should get other people in front of the committee to look at that type of recommendation.

[Frank Lofranco]

It would always help to have additional consideration. However, from our perspective, when we see an issue like this, we do engage. We engage with the respective market payment card network operator, which I believe in this case may be Mastercard, to ensure that any provisions within the code are adhered to. When they're not, we have the authority to act from a supervisory and enforcement perspective.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Just for colleagues, in a really non-partisan way, I would direct them to look at the Canadian Federation of Independent Business. It issued a table after the government's announcement about reducing credit card fees, and it has a list of all of the payment processors that says whether they committed to not increasing fees while trying to keep profits similar or greater. The number of them that did not respond to the request or whose response was unclear—and I read through the responses—is pretty stark.

Mr. Chair, I would note—and for the analysts—that this is something we might want to delve into. It's not criticizing the efficacy of the government's announcement. It's saying that if the government has done this and the intent is for merchants to realize the benefits of lowered fees, then this extra layer also needs to be considered if the savings are not, in fact, being passed along.

[The Chair, Liberal, Joël Lightbound]

Thank you, MP Rempel Garner. That is a very interesting point that I think committee members will agree should be on our radar in the course of this study.

Mr. Van Bynen, the floor is yours for five minutes.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Thank you, Mr. Chair.

I received information from the Library of Parliament that tells me Visa represents 58% of credit card transactions and Mastercard is 38%. That's 96% of transactions concentrated in the hands of two organizations. My concern is about that concentration of power, which we've seen in telecom and in a number of other areas.

Do you believe that the credit card industry exercises undue power within the market? That question is for the Competition Bureau.

[Krista McWhinnie]

There's no doubt this is a concentrated market. As you said, there are only a couple of major players with very high market share. When we look at market power under the Competition Act, high market share isn't always determinative of market power, so we also look at barriers to entry, which are, again, high in this area.

There was a detailed analysis of the market power of Visa and Mastercard in the case we brought before the Competition Tribunal. Importantly, there was a finding that both of them held a dominant position at the time. That was quite a number of years ago, but I'd question whether circumstances have changed that.

Under the Competition Act, when we look at things like abuse of dominance, the question we're tasked with under the act is not whether competition is high enough or whether the market is too concentrated, but whether there's bad conduct going on that's making it worse. We're always asked to do a relative assessment: But for the allegations of anti-competitive conduct, what would the market look like and is it substantially more competitive? However, we don't have a role under the act to look at whether concentration is too high.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Can you forward that analysis to this committee for review?

[Krista McWhinnie]

Yes, I'd be happy to.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Thank you.

What can we do to make the financial transactions market more competitive, and are there examples of successes in other countries that we can learn from? Again, this is for the Competition Bureau.

[Bradley Callaghan]

Perhaps the best, most relevant deep dive we have done on this topic goes back to the Competition Bureau's fintech market study. It's some years ago now. I believe 2017 was the publishing of our report. Only a portion of it was focused on payment markets, including credit cards, but a number of recommendations in it are centred on improving competition in this space.

It focuses on how innovative new entrants can, hopefully, have an impact and focuses on recommendations to try to make sure that competition can work to its fullest, knowing that innovations are starting to come online. That includes trying to keep markets as open as possible and, if rules and regulations are being set in these industries, trying to make sure they are agnostic to the devices coming online, are flexible and are reviewed periodically. Then we can make sure that the barriers to entry, which my colleague mentioned, are as low as possible and that new innovations can bring competition to the market.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Another industry, the telecom industry, is subject to some concentration that's based on the technology and the cost of that technology. The CRTC has been influencing pricing and has also directed that this technology be made available to other retail suppliers. Is that the type of thing that could or should apply to this industry?

[Bradley Callaghan]

That is a question we would want to study in a lot of detail before we comment on it. If I'm thinking of the same situation the member mentioned in the telecom space about mobile virtual network operators, the bureau did have a comment. It was very nuanced, and it was made after looking at a fair amount of evidence before the CRTC.

As I mentioned earlier, it's not something we have looked at in enough detail to make a recommendation on. Again, to remind you of our mandate, we're really not a policy lead on what the ideal regulatory response would be, if any. It's about trying to make recommendations to the policy-makers making those decisions to ensure that competition can work as fully as possible.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Thank you.

I think I'm over my time, Mr. Chair.

[The Chair, Liberal, Joël Lightbound]

That is indeed the case. Thank you, Mr. Van Bynen.

Mr. Garon, you have the floor for two and a half minutes.

[Jean-Denis Garon, Bloc, Mirabel, QC]

Thank you, Mr. Chair.

I'm going to turn to Ms. Syal and her colleague from the Financial Consumer Agency of Canada.

Professor Syal, I want to hear from you because I know you're a behavioural scientist. I get the feeling that credit card companies, in their marketing and in their way of misleading Canadians and Quebeckers, are exploiting all the vulnerabilities of the human brain by making people believe they can buy all kinds of things for immediate gratification. They certainly don't advertise all the costs resulting from credit card purchases. We had an example of this at committee last Monday, when representatives of Mastercard Canada actually came to tell us that the reward programs offered by credit card companies and banks were in no way paid for by consumers, either directly or indirectly.

I have a two-part question for you. You'll have a minute or a minute and a half to answer it.

First, do you think the credit card companies are doing enough to properly inform consumers of the costs associated with their products?

Second, do you think measures should be taken to ensure that credit cards divulge their fees differently? Perhaps through regulations, we could ensure that, when a purchase is made using a credit card, the bill indicates all the related hidden costs, including interchange fees and transaction fees. Do you think this would help Canadians and Quebeckers make better financial decisions when using credit cards?

[Dr. Supriya Syal]

Thank you for the question.

Based on our studies, we provide information that is relevant to consumers on the choice of a credit card and what that means vis-à-vis rewards, fees and interest. We try to provide all of this information on our website for them to use. We also provide a comparison tool, which currently has 220 different credit cards that consumers can choose from.

To your point about behavioural finance, we've also run some behavioural finance experiments that are targeted at helping consumers pay down credit card debt. These provided additional information to consumers about credit cards and about the impact of not paying down their debt, and provided the types of information you were alluding to within the context of the intervention, which did indeed lead to a greater number of people paying down their debt and a fewer number of people increasing their debt during the 10-month period the intervention ran.

From a behavioural science perspective, would providing specific forms of information help consumers? Indeed it would help consumers. In terms of the legislation or regulation of that, again, we're not the policy lead. The Department of Finance would be able to comment on that.