Industry Committee on Oct. 24th, 2024

[The Chair, Liberal, Joël Lightbound]

I call this meeting to order.

Good morning, everyone. Welcome to meeting number 141 of the House of Commons Standing Committee on Industry and Technology.

I would like to remind all members and all witnesses to review the instructions concerning the use of microphones and earphones, because this is a matter of everyone's health and safety, particularly the interpreters'. I would also like to take this opportunity to thank the interpreters for their work.

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

Today, we are pleased to have several witnesses with us. We welcome Alexandre Lampron, director, government affairs, for the Conseil québécois du commerce de détail, who is testifying by video conference. Thank you for being here, Mr. Lampron.

From the Convenience Industry Council of Canada, we have Jeff Brownlee, who is here in Ottawa.

From Interac Corp., we have Bryan Bossin, head of government relations and external affairs.

Finally, from Stripe, we have Brian Peters, director of public policy.

Thanks for joining us. As you all know, you will get five minutes for your opening remarks, and then we'll start the discussion.

Without further ado, Mr. Lampron, the floor is yours for five minutes.

[Alexandre Lampron, Director, Government Affairs, Conseil québécois du commerce de détail]

Thank you, Mr. Chair.

Good morning, members of the committee.

I would first like to thank the committee for allowing the CQCD, the Conseil québécois du commerce de détail, to present its views on credit card practices and the regulation of credit cards in Canada.

I would like to remind you that the CQCD is the most important player in the retail ecosystem in Quebec. Its membership consists of 45,000 businesses throughout Quebec, some of whom have their headquarters here in Quebec, that employ over 483,000 people.

Credit card issues are nothing new for us, but we think it is important that we reiterate our views. First, contrary to popular belief, using payment cards, especially credit cards, does not come without a charge. Fees are billed to the retailer for using these services. We believe this is a disguised private tax that penalizes all retailers and consumers.

Our first proposal is therefore to ask the federal government to limit credit card transaction fees to the same rate as in Europe, which is 0.5%. More than 27 countries, such as Australia, France and Germany, to name just those few, have capped that rate at 0.5% for what is now approaching ten years. In fact, there is a consensus among organizations that represent retailers in Canada that these fees need to be capped right away.

By keeping interchange fees so high, the government contributes to further impoverishing consumers and our economy. These fees have an influence on the price of the goods sold in stores by adding to the retailer's operating expenses. This puts further upward pressure on the prices charged in the retail trade. In 2023, the federal government signed an agreement with Visa and Mastercard to reduce credit card interchange fees for small businesses. This came into effect last Saturday, October 19, 2024. The problem has not gone away, however. Fees are still too high compared to the target we are asking for. The CQCD also believes that the interchange fee reduction should apply to all retailers and not just small businesses.

No retailer, regardless of sales volume and size, should have to finance the credit cards' and banks' marketing programs. We acknowledge that credit card issuers are entitled to pay and bill the costs of the digital system that is needed for setting that system up. However, we have serious reservations regarding the need to keep fees so high where a system has already been put in place. The CQCD believes that retailers are being held to ransom.

The practice of paying cash is disappearing. Smart phones are also making paying in cash increasingly rare. Electronic payment has exploded. The “2024 Canadian Payment Methods and Trends” report released by Payments Canada in October confirms this. In 2023, retail payment transactions by card amounted to 63%, or almost two thirds, of the total volume of payments: 33% by credit card and 30% by debit card. The CQCD believes that credit cards are an essential, easy-to-use tool.

However, issuers of “premium” credit cards offer cardholders points, rewards or special benefits. Because retail prices are going up for all consumers, the wealthiest people are earning more points on the backs of ordinary consumers, who have access only to a non-rewards credit card. This system is enormously unfair to retailers and consumers in Quebec and Canada. The cost of points programs should be borne by the people who benefit from them. At present, it is lower-income retailers and consumers who are ultimately suffering the harm. Our second proposal is therefore to recommend that the federal government apply the user-pay principle and require transparency when it comes to the costs associated with these programs.

In conclusion, the CQCD advocates capping credit card fees at 0.5%, whatever type of credit card is chosen by the customer. This is also one of the recommendations the CQCD made in its brief during the federal government's 2022‑23 pre-budget consultations.

Action to ensure better control of credit card fees for all retailers would be beneficial for several reasons: greater fairness among consumers, an injection of funds for retailers and into the Canadian economy, enabling retailers to offer better prices, and better competitiveness generally for our businesses.

Thank you for your attention.

[The Chair, Liberal, Joël Lightbound]

Thank you very much for your very clear and concise presentation, Mr. Lampron.

I will now give the floor to Mr. Brownlee from the Convenience Industry Council of Canada.

[Jeff Brownlee, Vice-President, Stakeholder Relations, Convenience Industry Council of Canada]

Thank you, Mr. Chair and members of the committee, for your time today.

On behalf of Canada's 22,000 convenience stores, which employ 188,000 people in communities across the country, I want to highlight the significant costs credit card fees are to the daily operations of our retail stores.

In a nutshell, these fees, second only to payroll, have a direct impact on our ability to invest in our stores and the workers who serve Canadian communities 24-7, 365.

Convenience matters to communities. Recent data collected by our industry found that six out of 10 Canadians—by the way an overwhelming majority under the age of 40—believe convenience stores are important to meeting their weekly needs. Canadians also believe that our stores are responsible, safe and trustworthy, all attributes that we definitely take a lot of pride in. While we are essential to so many Canadians, they may not know that convenience stores collect more taxes than any other retail sector.

Unlike your local bakery, coffee shop or clothing boutique, which collect about 13% in HST, convenience stores collect approximately 48% in tax because we sell high-tax products such as lottery, fuel and tobacco. To put this into perspective, our members collected more than $11 billion in taxes last year just for the federal government alone. That works out to about $525,000 per store.

Adding to this is the shift to touchless digital payments. More than 70% of all gas purchases at our retail outlets were made by credit card last year and that number is increasing daily. Contactless payments are the new normal for our stores, and that means new pressures for our businesses.

Convenience stores also face what we call a double whammy with credit card fees. Not only do we pay an interchange fee on the products sold, but we also pay interchange fees on the taxes applied to those products. That means our retailers are swamped by excessive fees that punish our stores for no other reason than to be tax collectors for government.

Regrettably, a 2019 promise to eliminate interchange fees from the tax portion of retail sales remains unfulfilled. The result is that each convenience store is out of pocket close to $14,000 annually, courtesy of the tax portion of sales made by credit cards.

Some committee members may be wondering why our stores do not surcharge customers to help offset these rising costs. The answer is simple: competitiveness. If we want to compete with big box stores and offer products at prices customers demand, our members have no other choice than to absorb the cost of collecting taxes.

I also want to be extremely clear that recent changes to cap interchange fees for small businesses will not help the convenience store industry. This measure only helps the smallest of businesses, micro-businesses, in Canada and leaves out our mid-sized operations. What's worse is that large corporations like Walmart and Costco have the negotiating power to demand better rates with credit card companies and processors, leaving a huge swath of SMEs without any solution to this growing business cost.

I also want to make it abundantly clear for committee members that these fees have a direct impact on the survivability of our stores. Last year in Canada 1.5 convenience stores closed their doors every day. The majority of these unfortunately are located in rural and remote areas where corner stores are often the sole place for essentials for Canadians.

Our stores are urging decision-makers to take action on this issue. Convenience store owners should not be out-of-pocket because they are required to pay interchange fees on taxes. That's not only unnecessary, but that's also just bad policy.

Removing the interchange fee from the tax portion of sales could be done via a tax credit for qualifying businesses where retailers are reimbursed for the fees they pay exclusively on the tax portion of sales.

Of course, we would welcome a broad-based fee reduction, but that must be accompanied by strict rules that prevent acquirers from passing through additional costs directly to the merchants.

To conclude, it is absolutely perverse that an essential industry like convenience stores/gas stations are paying out-of-pocket for the privilege of collecting taxes. Imagine if Canadians were told that the federal government was going to charge taxpayers a 2.5% administrative fee every time they remitted their taxes. There would be outrage. Quite honestly, we fail to understand why there's no similar concern for our local businesses, which are an entry point to entrepreneurship for so many, including many new Canadians.

Thank you for your time today. I'd be happy to answer any questions.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Brownlee.

We'll now turn it over to Interac.

Mr. Bossin, the floor is yours.

[Bryan Bossin, Head, Government Relations and External Affairs, Interac Corp.]

Mr. Chair, good morning. Thank you for the opportunity to address this committee on behalf of Interac Corp.

Interac is a Canadian-founded, owned and operated payment network and financial technology company. We're proud to be celebrating our 40th anniversary this year.

Most Canadians are familiar with our brand and products. What some people don't know is behind our familiar logo is an intricate network that is used to facilitate payments more than 20 million times every day. Our network ensures that Canadians can easily access their money securely and at low cost from coast to coast to coast.

During my remarks I'm going to provide an overview of how our network operates and focus on two key priority areas for Interac: our commitment to providing low-cost payment options and our focus on upholding trust and security.

The Interac debit network powers payments made at over 500,000 merchants, including at point-of-sale, online and mobile payments. The Interac e-transfer service enables businesses and consumers to easily send or request money from one bank account to another anywhere in the country. Last year, Canadians completed more than 6.6 billion Interac debit transactions and 1.2 billion Interac e-transfer transactions.

Paying rent, buying groceries and sending money to friends and family: this is what Interac helps people do. Interac products are known for being low-cost options to make and accept payments. Our fees are structured to support small businesses, helping them control costs while offering their customers easy and secure payment options. It's for this reason that organizations such as the Canadian Federation of Independent Business have noted that Interac debit has served businesses well for decades.

It's important to note that credit card payments do not travel over the Interac network. The differentiator is that we provide Canadians with the ability to pay and exchange funds directly from their own bank account.

Over 300 financial institutions, from large banks to small credit unions, participate on the Interac network. Financial institutions maintain banking accounts and issue debit cards to their customers. Payment processors provide merchants with the hardware and software to accept Interac payments. What this means is we are able to serve consumers and businesses in all parts of the country.

Given the important role Interac plays in the lives of Canadians, security and trust are not just a priority, they are at the heart of everything we do. We're proud of the fact that Interac has been named the most trusted financial services brand in Canada for multiple years. Through world-class fraud controls and following national and international payment standards, we safeguard the financial transactions of millions of Canadians. We value the trust Canadians place in us and do not take this trust lightly.

Amid a rapid increase in online services, Interac plans to lead Canadians to digital prosperity. We know this will require an even more intensive focus on fraud mitigation and delivering innovative products that meet Canadians' needs. Ease of access, low cost, safe and secure transactions: this is Interac's unique value proposition.

We remain steadfast in our aim to enable Canadian consumers and businesses to participate in the digital economy in a way that powers their success.

Thank you for your time. I look forward to answering any questions you may have.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Bossin.

I will now give the floor to Mr. Peters, the representative of Stripe.

[Brian Peters, Director, Public Policy, Stripe]

Thank you for the opportunity to speak to the committee today.

Stripe is a technology company that builds economic infrastructure for the Internet. Businesses of every size, from small start-ups to public companies, use our technology to accept payments, fight fraud and manage their businesses online.

Stripe began operations in Canada just over a decade ago. At the time, one of the biggest challenges for online businesses was accepting payments, which we simplified with just seven lines of code. Since then, our platform has grown to provide a range of services, including fraud detection, in-person payments, subscriptions, calculation of tax and more.

We are proud of our ability to support Canadian companies, who have grown their payment volume on Stripe more than 50% in the last two years. Last month we announced a new Toronto office. We are also hiring to support thousands of Canadian businesses.

Canada is an increasingly competitive payments market. At last count, there were over 50 companies offering payments processing, from major banks to well-known technology companies and specialized players. Of the fees that companies like Stripe charge for card payment processing, the vast majority, 80% to 90%, goes to the bank that issued the card. The remainder is used to cover the processor's costs, including liabilities for fraud or other losses that we bear.

In December 2023, Visa and Mastercard announced that they would lower certain credit card interchange fees for a subset of small businesses in Canada. Card network scheme fees and interchange fees vary based on more that 50 factors, including type of card, transaction type and industry category. They often decrease and increase multiple times a year.

Stripe offers two pricing models. The first is interchange-plus pricing, where network fees and other costs are passed through to the businesses. Stripe is passing the recent interchange reduction to businesses on this pricing model. The interchange-plus pricing model also exposes businesses to price increases, some of which have been material recently.

The second is standard pricing. This is our flat rate model that does not change with the transaction-level network cost fluctuations. Our goal with standard pricing is to make it seamless for small businesses to get started and accept payments. This pricing model is simple and predictable. It allows small business owners to focus on running their business.

Stripe's standard pricing also helps small businesses grow, because it includes value-added services that combat fraud and improve credit card acceptance rates, and updates card details to reduce churn. Businesses using Stripe's latest checkout suite saw 11.9% more revenue on average.

Over recent years, Stripe's flat rate standard pricing has shielded businesses from processing costs that have increased overall. In the last year alone, Stripe's costs for credit card processing in Canada for businesses on standard pricing increased by 0.036% , primarily due to recent tax-related changes. By comparison, the small business interchange reduction is about 0.02% when averaged across Canadian businesses on Stripe's flat rate standard pricing. This means costs have increased in aggregate. However, businesses on our standard flat rate pricing will see no changes to their costs. Stripe's standard pricing for domestic card payments hasn't changed in over eight years.

Across Canadian businesses on Stripe's flat rate standard pricing, the annual interchange reduction collectively makes up less than one-tenth of one per cent of the total $1-billion reduction promised by the government.

When we saw the news of the interchange fee reduction for a subset of small businesses, we thought long and hard about the best approach. For our interchange-plus pricing, it was a straightforward decision to pass on the reduction to users. That's how that pricing model works. For flat rate pricing, we concluded that the predictability and simplicity of a single price is more important than a small reduction. If we were to start passing through cost changes to all users, it would effectively be the end of flat rate pricing. We believe this would be to the detriment of businesses who have chosen Stripe for predictable prices as well as the many other services we provide.

We're deeply committed to Canada. We continue to compete energetically in the market and invest in technology to help Canadian businesses grow, export and manage their revenue.

Thank you, and I do look forward to your questions.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Peters.

To start the discussion, I will give the floor to Mr. Perkins for six minutes.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Thank you, Mr. Chair.

Thank you, witnesses, for being here at this early start in the morning.

My first question is for Mr. Brownlee.

Mr. Brownlee, you represent convenience stores, small businesses across the country. We've had testimony, and most people know that these merchant fees range between 1% to 3%. On average, what do your businesses pay as a percentage of sales, the merchant fee that charges a percentage of sales?

[Jeff Brownlee]

It varies by store and by banner. Let's use gas for an example. It can range anywhere from 1¢ to up to 6¢, depending on what's going on.

I'll give you an example. Last year, the fees were so high that in Atlanta Canada, where they have regulated margins on fuel, a lot of the retailers out east were offering discounts of up to seven cents per litre if you paid by Interac debit or by cash.

The fees are pretty astronomical in what we do, in what our banners go through on a daily basis, but the reality is, though, that we are just very unique because of the nature of the products we sell.

Taxes are layered a lot on fuel, whether in—

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

I understand that. I'm sorry to interrupt, but my time is limited.

The upper end generally is about 3%. Is that right?

[Jeff Brownlee]

It is. That's correct, but it depends. That doesn't take into consideration some of the premium plans for some of these cardholders because, as Mr. Lampron said in his opening, basically, the points are on the backs of the retailers.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Yes. I get it.

Mr. Peters, Stripe has been very successful. I've read in the Financial Times and other places that you grew by 25% last year overall globally. You just said that, I think it was in Canada, you grew by 50% in the last two years. Is that correct?

[Brian Peters]

Companies on Stripe have seen their payment volume grow by 50%.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Okay. It's by volume.

[Brian Peters]

It's the companies we support that have grown.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

You're fairly successful. I know that as a private company, some of the stuff is not public. I understand last year the global revenue may have been around $14 billion. Can you tell me what the revenue was in Canada for Stripe last year?

[Brian Peters]

We don't confirm or discuss private financials.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Your operating profit margins, none of those things you will disclose publicly. It's very difficult to understand, where other of your competitors are public, what your profit margins are, but it's a fairly profitable business because it's an electronic business, you said, and you're very proud of your growth.

When you make the decision to say no to the government on their claim that they're lowering merchant fees, in your management structure, where does that go? Does that go beyond Canada? Does that involve your head office, which I believe is in California?

[Brian Peters]

Our management team is spread around. We're over 100 employees in Canada. We're a distributed workforce, but the decisions—

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Where are the decisions made?

[Brian Peters]

Decisions are made collectively by individuals from a range of offices and locations across North America and around the world.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

When you make a major decision like that to basically defy the Government of Canada, does that get discussed at your board?

[Brian Peters]

This pricing decision was not discussed at the board level. The board was not involved in this.