Evidence of meeting #152 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 stripe.
A recording is available from Parliament.
Chief Executive Officer and Co-Founder, Stripe, Inc.
Everything you laid out is consistent with my understanding.
Liberal
Ryan Turnbull Liberal Whitby, ON
Okay, that's great.
I have one more thing to clarify with you.
You said this multiple times, but I want to make sure I heard you correctly that the Stripe board did not make a decision on this, that there was no decision made at the board level not to hand down cost savings to Canadian businesses.
Is that correct?
Chief Executive Officer and Co-Founder, Stripe, Inc.
Not only was there no board decision, but there was also no board discussion. In that sense, what you're saying is right.
If you'll forgive me for belabouring the point slightly, I want to contest a characterization, somewhat.
For businesses on our interchange pricing model, all of those savings have been passed on. The issue at hand is whether a business like Stripe can maintain a blended pricing scheme, where businesses are paying for a basket of products and services, in ensemble. What we're discussing is a reality where Stripe has seen its costs increase in Canada over the past year and where, despite that cost increase, we haven't increased the fees for that blended package. Of course, the products and services themselves have become more extensive.
The Canadian government could legislate, or in some form regulate, how blended pricing is provided by businesses like Stripe. I think it would be worse for businesses. That's closer to how things traditionally were. It's a very complicated, baroque pricing scheme. We could unbundle all of this and try to price all of the different components separately. I think it would be more complicated and worse for businesses. The reason so many businesses have adopted Stripe in Canada over the past decade or so is that our pricing is simpler and the value is higher than it is for traditional incumbents. Therefore, I think this would be a step in the wrong direction.
Liberal
Ryan Turnbull Liberal Whitby, ON
Yes, and you're naturally going where I wanted to drill down in my remaining time, which is the pricing model. You've said very clearly that many of your customers—you've claimed it's already most of the transaction volume in Canada—that pay you directly already have price savings. Those price savings have been passed down. Those interchange fee price reductions that were negotiated by the federal government with agreements have been passed down.
It's your blended pricing specifically that we're digging into. I think it's hard for us to understand. Your business model and the structure of that pricing are not fully clear to me at this point. What I'm hearing from you is that.... My tendency is to ask, just as Mr. van Bynen did, why you can't hand down the price decreases in that blended pricing structure. Why not? That's what makes me a bit concerned. It seems as though you're not complying with what the federal government has been asking of you or that has been communicated to you with a clear expectation by the federal government.
Help me understand that. Really distill this for us, because this is where we're going to keep pushing you. I understand what you've said today. Keeping this fee structure stable has value. I think having a bundle of services has value. I get that. I understand that as a business person, and as a customer, I can see how that could have value. However, it still doesn't explain to me why you can't hand down a price decrease if the expectation has been clearly communicated by the federal government.
Chief Executive Officer and Co-Founder, Stripe, Inc.
I appreciate the way you've laid out the question. It's natural to wonder about what you just asked.
First, on the businesses on the interchange-based pricing model, I want to clarify that, yes, they've seen the interchange change. They were discussing the price reduction in certain circumstances. They've also seen the tax increase on the processing costs. Actually, their average costs have gone up rather than down, because we're passing everything on. The businesses on the blended scheme have been insulated from that net increase.
To your question as to why we don't just change the blended price, in principle, anything is possible, of course, but the card networks change their pricing all the time. There are regular rate updates made to cross-border transactions or transactions for this sector or what have you, and of course, the blended price spans lots of different payment methods.
We are aggregating literally hundreds of different prices together into a single, stable, predictable amount. It would be extremely unfriendly and unfavourable for businesses if every time one component of that bundle changed, we updated the sticker price. It would undermine the purpose.
In general, the prices that Stripe is on the receiving end of have been increasing rather than decreasing over time. For example, our total card scheme costs have increased over the past couple of years—reasonably materially—but again, we have not changed the 2.9% plus 30¢.
Again, I don't want to falsely pretend that Stripe couldn't permanently change the blended pricing construct, but it would seem like a real departure from the core value proposition around stability that we've been providing if we were to change it to 2.89% or 2.88%, or something like that. If we were to go into that world of changing...in response to fluctuations in the underlying costs, it would become 2.93% and 2.95%, and it would be going down a road that is less favourable for businesses.
Again, it's closer to how things used to be, when they were fluctuating and volatile. I think the reason many businesses switch to Stripe is that they really value the certainty and stability that we work so hard to provide.
Liberal
Ryan Turnbull Liberal Whitby, ON
I'm hearing that you think it would undermine the core value proposition of those bundled services and the very stable pricing that you've been able to provide. I get what you're saying. I don't know whether it's completely satisfactory to me, but I do get what you're saying. I understand that, from your strategic business perspective, this may make a lot of sense for you, and I also get that it's not just about you. The way you're talking about it is very clearly focused on what is best for your customers. Obviously, a successful business has to serve its customers well, otherwise it won't be able to compete.
I want to clarify one other quick thing. Very clearly, you have said a number of times that because of a processing fee change, an increase, your customers are only saving about $10. I want to just say that I understand that this may be your perspective within your target market or within your customer base, but our numbers at the federal level suggest that, based on the changes that have been made, companies—small businesses—that have credit card payments that are processed of about $300,000 would see savings of $1,080 per year. It's pretty significant savings there in general. That may not be the case for your particular clients, but certainly for others that are seeing those interchange fee reductions, that's a really significant amount for a small business. I just want to get that on the record because I don't want people to misinterpret what you have said here, and I think it's important the fact that the federal government has done some decent work here to lower those interchange fees, which we really want to see handed down to small businesses. I think you can get that from all members here today. We all want to see our small businesses thrive. They've gone through tough times, and we want to make sure that they have the lowest possible fee structures and fees.
Thanks very much for your testimony.
Liberal
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Thank you, Mr. Chair.
Mr. Collison, thank you very much for being here today.
Are the fees you charge in Canada, the ones set out in your fee schedule, identical to those charged everywhere else in the world?
Chief Executive Officer and Co-Founder, Stripe, Inc.
It's structurally similar, but the exact amounts differ per country because the underlying costs differ in every country.
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
I gather that less than 10% of your revenue comes from Canada. The Canadian government has repeatedly asked you to reduce fees here in Canada, and you have refused each time.
You're saying that you weren't necessarily the one who decided not to reduce fees in Canada. If that's the case, why do you think your company decided not to do that?
Chief Executive Officer and Co-Founder, Stripe, Inc.
For businesses that pay us for payments directly on an interchange-based model, we pass everything through. We pass through the interchange change that you're describing. We also pass through the tax increase and the GST on payment processes and costs.
Then, for the businesses that pay us a blended fee, which is a minority of all transactions, we've insulated them from the cost increase that ensues where the interchange change is more than offset by the tax increase, and we protected those businesses from that increase.
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Okay, but you still made the choice not to reduce fees. Is it because there's not much competition? Earlier, you said there weren't many competitors in your industry.
Would you say that, until someone changes the environment in which you operate or exerts pressure on you to lower your fees, you have no reason to do so?
Chief Executive Officer and Co-Founder, Stripe, Inc.
I think I said—or, at least, I meant to say—the opposite. We are in an extremely competitive ecosystem. There are more than 50 different payment providers in Canada, and we started from nothing in Canada just over 10 years ago.
The only reason we have any business at all is because customers are voting with their feet and deciding that Stripe is a better product and better value than the alternatives. Stripe will only have a successful business in Canada if businesses continue to make that determination. We are at their mercy.
Now, fortunately, more than 500 businesses in Canada chose Stripe just in the past week, deciding that Stripe offers better value than all the alternatives on offer. However, we need to win their business and win their loyalty on a daily basis. We get nothing, you know.... Nothing comes to us automatically.
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
Earlier, when you talked about the open banking system, you said that Canada wasn't as far ahead on this as other countries.
What does Canada stand to gain from entering into the universe of open banking, particularly as it relates to cryptocurrencies? Are you involved in that sector as well?
Chief Executive Officer and Co-Founder, Stripe, Inc.
I think Canada stands to gain better consumer experiences and lower fees by adopting some of these new real-time payment schemes and payment wallets. Today, if you want to transfer $10 to your friend, it's actually a kind of clunky process in many countries, including Canada. With these new central bank wallets, that can then become instant, close to free and very straightforward. Once those wallets exist, they can then be used for business payments as well— again, typically, with much lower fees than traditionally with cards.
I think it creates a more competitive ecosystem. It creates better consumer experiences and reduces fees for merchants, so I think there's a lot for society to gain.
We operate a little bit in the cryptocurrency domain. Within cryptocurrency, we're most interested in what are called stablecoins. Rather than the volatile prices of Bitcoin and Ethereum and these kind of special purpose tokens, we're more interested in regular currencies—the U.S. dollar, the Euro, the Canadian dollar—and how they can be put on the blockchain and made accessible in an open access way. We don't do a lot here today, but we're pretty interested in it over the coming years, and we see it potentially as another way to reduce friction, reduce fees and provide broader access to businesses.
December 12th, 2024 / 9:45 a.m.
Conservative
Bernard Généreux Conservative Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC
As you said, the new way of dealing directly with the bank would significantly reduce interchange fees. Isn't it counterintuitive for a company like yours to see its sales drop significantly, or do you think this is a market with incredible potential where you can get even more customers and therefore do more business?
Do you want to see costs to go down? At this point, you can't even bring costs down when the government asks you to. Would a new way of doing things potentially mean much less revenue for you?
Chief Executive Officer and Co-Founder, Stripe, Inc.
I think you're right; there's some risk there, but in the long term, we think costs for businesses should be lower rather than higher. We like the fact that, because Stripe charges on a revenue basis, our incentive is very aligned with the business. We only make money if the business does.
Increasingly, businesses are paying us for the software services that we build and all these other products that help them grow and manage their revenue, rather than just paying us for the transaction.
You're right that there is a bit of risk involved for us in that, but ultimately, we think lower costs for businesses are just the right direction to move in, and we'll figure it out. If Stripe's revenue goes down a little bit in one year, hopefully we'll make it up in future years.
Liberal
The Chair Liberal Joël Lightbound
Thank you, Mr. Généreux. Your time is up. You even got a little extra.
Mr. Van Bynen, please go ahead. You have about five minutes.
Liberal
Tony Van Bynen Liberal Newmarket—Aurora, ON
Thank you, Mr. Chair.
I'm trying to get a better understanding the differences between the interchange pricing model and the blended pricing model.
Which one is it that charges 30¢ plus 2.9%?
Chief Executive Officer and Co-Founder, Stripe, Inc.
That's what we call the blended model.
Liberal
Chief Executive Officer and Co-Founder, Stripe, Inc.
There is no single number. That's the reason we think it's less friendly for small businesses. It's a very complicated fee schedule based on the card type, the country and the transaction category. There are literally hundreds of factors that go into determining the price on a per transaction basis.
Liberal
Tony Van Bynen Liberal Newmarket—Aurora, ON
On which one of those two plans did you commit to reducing your prices?
Chief Executive Officer and Co-Founder, Stripe, Inc.
It's more the structure. In the interchange-based pricing model we just pass everything through, so if interchange rates change, as happened in certain circumstances here, then that automatically flows through to businesses. With the blended pricing model, we haven't changed our prices in eight years, even as various costs have gone up.
I'm happy to say that even though our costs in Canada have gone up just over the last year, we have not increased the blended fee.
Liberal