Industry Committee on Oct. 21st, 2024

[Alexander Vronces]

It might.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

For small businesses that use Stripe to deal with Visa and Mastercard to lower fees for small businesses, it's actually just a fake announcement that went to offset Stripe's tax burden. I think that's basically what we're kind of getting from this meeting here today.

Small businesses can just pass that burden on to their customers. I mean, if the payment company is absorbing those costs, forcing the small businesses to pay them, they can then download that onto the consumer.

[Alexander Vronces]

It's possible. How costs are passed along in this complicated chain depends on so many different things and on which parties we're talking about. In theory, someone has to pay the price of that tax.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Yes. Someone has to pay it in the end. The consumer always loses. That's generally how this works.

Stripe made $16 billion in profit last year and processed a global payment volume of a trillion dollars. Why do you think the government didn't force them to pass along the savings from their deal with Visa and Mastercard to small businesses?

[Alexander Vronces]

I don't know why they didn't force the processors to pass along the cost. They probably did everything they could to do it. I think for any policy-maker who looks at this market, their first reaction will be, wow, this this is really complicated; we can't just go in and tell companies what prices to set and not expect any unintended consequences.

The market for payments is multisided. You can't affect prices here without also affecting prices over there. You can't give merchants a break without costing consumers more. You can't give consumers a break without costing merchants more. The government has probably realized that this is a game of redistribution. You can't make everyone win here. This is why the history of credit card policy in this country seems to me to be like that famous definition of insanity: We do the same thing over and over again and expect a different result. We've been through many voluntary agreements, probably because we've realized that we can't regulate and we can't make everyone happy.

Our perspective as an association is this: Let's stop the madness and focus on actually promoting competition and innovation in this space. That's what will drive down the costs for businesses and consumers.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

You think there should be more competition in this space. Is that what you're saying?

[Alexander Vronces]

Yes.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Okay, because to me, it's like, why would the government have to get involved in this space in the first place? Why are the payment companies not just lowering these rates on their own anyway? Why wouldn't they just do it on their own?

[Alexander Vronces]

In some spots they are, but not in every spot, though. The Competition Bureau's market study on this in 2017 concluded that, when it comes to payment processing in the credit card market, competition is fairly strong. It's probably still fairly strong today.

Just for kicks, I went on Shopify's website and looked at all of the different payment processors they have integrations with. There were way too many to count.

The market has also started competing along non-price based margins. They don't only say, “I can give you a better deal.” They say, “I can also do your inventory management. I can do your reconciliation. I can handle your fraud.” They're competing quite viciously with each other for market share.

Where we don't see competition is when it comes to some other payment systems that could be used as a way to compete with credit cards. In particular, our national payment systems, that real-time rail that everyone keeps talking about. Access to that thing has been restricted and controlled by the biggest banks in the country, who happen to make a lot of money from credit cards.

I think, in this country, we have a governance problem in the payment system, and nothing the government is doing right now is addressing that. I think that is actually what the problem is.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

I polled some small businesses in my home community over this last week, talking to them about some of the fees that they pay in regard to Visa, Mastercard, Interac. It's a small sample, but basically, when I factored out across the city of Swift Current, for example, with 18,000 people, there were a couple hundred businesses in our town—it's a very entrepreneurial city—and over a year we're probably looking at close to $500,000 leaving the local economy just in fees alone. That was just only one aspect of fees. When you add all of the other fees that are baked in there, we're probably over a million dollars in fees leaving the local economy and going to payment tech.

Do you think that's reasonable?

[Alexander Vronces]

I think, overall, the cost of sending payments in this country and receiving them is probably higher than it needs to be. EY released a report a few years ago that estimated, overall, when we look across all of the different payment instruments, the cost of sending and receiving money costs Canadian businesses $14 billion to $32 billion every five years. That's a non-trivial portion of GDP, and there's a lot more we can do to bring that down.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, MP Patzer.

You said $14 billion to $32 billion every five years?

Thank you.

Mr. Garon, you have the floor.

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

Thank you, Mr. Chair.

First, allow me to welcome the witness, Ms. Yu, who arrived a little later.

Ms. Yu, I found your opening remarks very interesting, particularly when you mentioned that some people in extremely precarious personal and financial situations go from one credit card to another, often using very high interest rate credit to pay the previous credit, and so on. It does become a vicious circle.

When we look at some recent data, we realize that Canadians are very addicted to credit. They borrow a lot. As a percentage of disposable income, Canadians' non-mortgage debt is higher than that of Americans or that of people in several European countries.

How do you interpret this situation? Is it culture?

On the one hand, the financial industry tells us that the market lacks fluidity, that it's difficult to obtain credit and that it should be easier, and that the gears should be better oiled. On the other hand, people in Canada are among the most indebted of the Organisation for Economic Co-operation and Development.

What's the explanation for all of this?

[Margaret Yu]

I think you're absolutely right. There are a lot of people accessing credit cards as a form...which is having debt. It's more accessible than, for example, a line of credit, which might take the income and assets into consideration before they can borrow. It's usually at a much lower rate. Meanwhile, credit cards are being marketed—in the experience of our participants—at post-secondaries, at grocery stores, at malls. It is no credit check or one credit check, and you're automatically eligible for $500 or $1,000 credit limit.

As well, our participants get general mail that says they're pre-qualified for a credit card. All they have to do is sign their name and they would receive a credit card. It is highly accessible to access credit cards and their debts.

I hope that answers the question.

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

Based on what you just told us, I'm going to ask you a question that may seem a bit direct, but I'm going to ask it in this form.

Is it your opinion that some credit card companies are predatory in their behaviour towards people with low financial literacy who are particularly vulnerable to this type of debt, whose inner workings they don't fully understand?

[Margaret Yu]

Yes. Thank you for the question and the observation.

In my experience in working with participants living on lower incomes, absolutely, plain language is not something that is used. Maybe the customer sales representative has a quota to meet and will tell the participants at the mall, at a school, at the grocery store that if they sign up for this they can have a grocery gift card of $250. All they have to do is put down their name and they'll automatically get a card, so today's groceries are for free. Our participants would take what they say at face value.

Regarding the terms and conditions, I don't know about you, but for me they are quite lengthy. I scroll through them, and I just put a check mark and say that I consent and agree. I honestly do not read through all that, and in my observation of our participants, they also do not read through that.

Giving some discretion that says in plain language that, if you sign up for this debt, it means that you make minimum payments and in 23 years you'll pay it off, or something that will help them draw a conclusion, can be quite helpful.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Garon.

Now we'll go back to MP Arya, whom I forgot in this last round after MP Patzer. Then we'll go back to you, Mr. Masse.

MP Arya.

[Chandra Arya, Liberal, Nepean, ON]

Thank you, Mr. Chair.

Mr. Chair, I request that Equifax Canada send us their updated report on the delinquencies, the credit card balances, etc., as and when it becomes available.

I have a question for Fintechs Canada. The real-time payments system usage will reduce the usage of credit cards. Is that right?

[Alexander Vronces]

It could, and people had high hopes it would in the early days, but we feel that the big banks that control the organization that is meant to deliver this system have pared back the scope so aggressively that this thing will amount to what insiders joke is a dumb pipe, if I can use that image.

[Chandra Arya, Liberal, Nepean, ON]

You mentioned that you don't want the government to micromanage, you want more competition. I agree. However, at the same time you comment that a real-time payment system should be built in a timely manner, and you want the federal government to take action. I think your organization wrote an article about that.

Tell me what the government is doing that is preventing the system from being developed by Payments Canada, whose members are all the financial institutions, I believe, and all the insurance companies are also the members there. Why do you blame the government for that?

[Alexander Vronces]

It's pretty simple. The government created Payments Canada and said that, on the one hand, you have this public interest mandate, but on the other hand, the biggest FIs in this country are going to fund you. They have created this irreconcilable tension and said to go off and do this. They have really created what is, from the outside looking in, a dysfunctional organization.

[Chandra Arya, Liberal, Nepean, ON]

What has the U.S. done, then, on that fact now?

[Alexander Vronces]

In the U.S., the central bank has just come in and said they're going to build this thing, and you'd better connect to it.

[Chandra Arya, Liberal, Nepean, ON]

Here also the Bank of Canada is a member.

[Alexander Vronces]

In theory, there is nothing stopping the government from giving our central bank the mandate to do something like what we have seen in the U.S. I think, at this point, it's the continued reliance on this broken governance model that's slowing down and ultimately damaging the promise of this real-time rail.