Monday, July 13, 2009
In June 2009, the Canadian Senate Standing Committee on Banking, Trade and Commerce rejected its own merchant lobbyists' call for price regulation on fees charged to merchants for credit card transactions. MasterCard Canada officials welcomed the decision and said they appreciated the opportunity provided by the committee to participate in a comprehensive examination of Canada's payment systems.
"The Senate Committee clearly recognized that price controls are inappropriate and would harm consumers," said Kevin Stanton, President, MasterCard Canada, in a press release. "Australia continues to provide an excellent example of how such price controls reduce credit card program benefits and result in no appreciable decrease in the price of goods and services."
According to Stanton, when Australia regulated the fees merchants pay for card acceptance, retailers not only pocketed the windfall, but consumers' credit card fees and interest rates went up, competition and consumer choice was reduced, merchants charged consumers extra for using credit and debit cards even though merchant fees decreased, and card reward programs were reduced or disappeared altogether.
Adam Atlas, a Montreal-based Attorney specializing in the payments industry, echoes this sentiment. He expressed sympathy for merchants, but he feels any kind of regulation would interfere with commercial activity.
"Unlike the Credit Card Fair Fee Act in the States, in which [President] Obama's efforts are geared toward the consumers, most of the debate up here has been at the merchant level," Atlas said. "The best solution is not regulation, but to open up competition in the banking industry.
"Merchants don't have a lot of choice for processing services. Some say that the market is not big enough to create effective competition and therefore must be regulated. I'm really pleased that there is no regulation because it's not necessarily going to benefit its intended recipients. And we all know that if one fee is capped the acquirers will make up for it with other fees."
Atlas has spoken with some Canadian merchants and believes they want the fee cap because many retailers, especially the larger companies, are operating on a profit margin of 2 or 3 percent. But because the country only has half a dozen national banks and a handful of credit unions, he doesn't see the current pricing model changing anytime soon.
"We have a Conservative government, so I don't think this law will come into force," he said. "As a result – and as much as I am critical of Canadian acquirers – I fully expect to see an increase in outside sales organizations in Canada. I think that's a great thing, and I feel this decision will only increase new opportunities for ISOs in Canada. You can criticize the Canadian banks for being oligopolistic, but to their credit they have remained very stable."
MasterCard also applauded the committee for recognizing the benefits to consumers and merchants of introducing competition in the Canadian debit market. Stanton said MasterCard's Maestro debit solution is flat-fee based and is less expensive to merchants than Interac (the primary debit and ATM network that is owned collectively by the national banks) and called for "a new era in Canadian debit."
However, even though MasterCard has made inroads into the Canadian debit market, other debit solution providers have encountered much more difficulty, especially companies that specialize in online payments. "This [press release] talks about the brick-and-mortar world, but there is never any mention about online transactions," said Brian Crozier, co-founder of UseMyBank Services Inc., a firm that facilitates real-time debit transactions through online bank accounts.
"MasterCard has had no trouble implementing a debit network because, along with Visa, they are the banks. The banks distribute, issue and accept their products. But Canada has been almost 100 percent credit card only on the Internet. There's no such thing as a Visa or MasterCard debit transaction online in Canada. Thirty to 40 percent of people up here don't have credit cards. And if you don't have a credit card, you can't shop online."
Crozier said Interac fails to mention that its online service is sold at 2 percent of the transaction value. Additionally, the banks have suppressed a flat-rate service for merchants and billers since 2002 and have restricted most online merchants to using credit cards only.
"If you think of the banks and the credit card companies as working in collusion to make sure they get 2 percent of every transaction that happens on land, sea or air, that's just who they are," Crozier said. "So anyone that comes up against them in any way is considered a threat to their business. That may have been true at one time, but I think everyone realizes now that payment options don't cannibalize each other. It's just that the debit market is growing faster than credit."
However, Atlas said that he was not aware that Interac had abused the pricing model, as the pricing he has seen has merchants paying a per-transaction fee without a discount rate. "Like many payment models, it's hard to discern the correlation between pricing and cost," Atlas said. "It costs the same to move $1,000 through the network as it does to move $5. For online debit transactions, Interac has launched Interac Online, but only about two merchants use it."
UseMyBank is headquartered in Toronto, and Crozier believes his company and others are essentially being locked out of the ability to compete. "The banksters want to keep it that way, and we're fighting to change that," Crozier said. "Because of these restrictions, we don't have any Canadian business except for the billers that use us.
"The Canadian travel sites along with West Jet and Air Canada process billions each month with credit cards online and clearly want and have needed more payment options for years. The banks won't give them debit at any price. So when businesses try to use anything but the bank-sponsored products, the banks threaten to take away their credit card business as well."
Crozier added that he believes in the credit card model as it is and doesn't want to see it changed. He merely wants an opportunity to compete in a free market environment. "I believe all payment types can exist in harmony," he said. "Everyone can have a piece of the pie. The banks don't need to be afraid of being stolen from because the e-commerce space is growing so fast. It's not about either/or; it's about both and more."
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