Canadian Business Group Warns of Higher POS Debit Pricing

A big change may be in the offing for Canada's point-of-sale debit market that could bring American-style percentage-based interchange to a system whose pricing currently is based on flat fees. The change could possibly even bring Visa and MasterCard debit cards to the country for the first time. The result, says the Canadian Federation of Independent Business, will be higher debit card acceptance costs for merchants. The warning is contained in a recent letter from Catherine Swift, president and chief executive of the Toronto-based CFIB, to the association's 105,000 small and mid-sized business members. The letter asserts that banks and the Canadian arms of Visa Inc. and MasterCard Inc. have designs on generating more revenue from debit card purchases. “The growth in debit has been astronomical since its introduction in 1984,” Swift's letter says in reference to the founding of Canada's Interac Association, a not-for-profit network owned by financial institutions. “Visa and MasterCard now want in on the action in Canada and are trying to convince the banks to support them with the promise of greater fee income.” But the CFIB letter doesn't offer details of exactly how the networks or banks, which as card issuers receive interchange income, would impose a new POS debit order in Canada. One possibility is that banks would issue Visa and MasterCard-branded debit cards, or that banks would somehow force changes in the current system dominated by Interac. Neither Visa nor MasterCard would comment about the CFIB's letter by late Thursday but indicated they might have statements later. In an e-mail, a spokesperson for the Canadian Bankers Association says, “we wouldn't know if any of our members are considering Visa or MasterCard-branded debit cards as these are individual business decisions that they would make and the CBA would not be involved in those decisions.” In an interview with Digital Transactions News, Swift says she learned of possible changes in the debit card market “from a number of different sources,” including Chase Paymentech, the CFIB's partner merchant acquirer. A Chase Paymentech spokesperson could not be reached for comment, but a spokesperson for another Canadian acquirer, speaking on background, says “we understand the issue has been circulated around for several months already.” Indicative of the confusion in other countries about dual-function U.S. debit cards?which like credit cards carry either the Visa or MasterCard brand on the front for signature-based purchases but also an ATM network logo on the back for ATM transactions and PIN-based purchases, the CFIB's letter incorrectly says Visa and MasterCard “allow their [U.S.] credit cards to double as debit cards.” It does, however, get it right in noting that such cards carry interchange pricing based on a percent of the sale plus a flat fee for Visa/MasterCard purchases. “We believe that if Visa and MasterCard were to bring the same service to Canada, debit rates would go up dramatically,” the letter says. In Canada, where debit cards are more popular than cash, debit cards carry the Interac brand exclusively, and acquirers set flat-fee pricing that can vary by volume. CFIB has a deal with Chase Paymentech that sets Interac pricing for many members at C6.5 cents per transaction. Offering a $1,000 purchase as an example, the letter says that if “the charge was to become 0.65 percent (the current U.S. average), the fee would be $6.50?an increase of almost 10,000 percent!” Swift says a $1,000 debit charge is not unusual in Canada. If a merchant was comparing an interchange pricing plan of 0.65% against one with a 6.5-cent flat fee, he would pay more under the percentage-based plan on charges over $10. An Interac spokesperson says by e-mail “Interac Association does not speak to the pricing models and plans of other organizations.” Interac does not directly charge merchants or consumers fees, the spokesperson adds. Interac handled 3.5 billion POS debit transactions in 2007 worth C$156 billion, up from 3.3 billion transactions and C$148 billion in value in 2006. Swift says the CFIB is making Canadian legislators aware of its objections to higher credit and debit card acceptance costs. “Basically, what's been done in the U.S. over the past couple of years they're trying to do in Canada,” she says. The CFIB's letter can be found at www.cfib.ca/en/default.asp?l=E.