Temperatures Rise in Canadian Merchant Protest over Card Fees

The heat over payment card interchange and debit cards in Canada is getting high enough to melt glaciers in the Yukon. A retailer group dominated by big stores, the Retail Council of Canada (RCC), on Wednesday launched a Web site called StopStickingItToUs.com in a campaign to build merchant resistance to what it says is higher credit card interchange and changes in the country's popular Interac national debit system that will result in higher debit card costs for merchants. This move comes just one week after a trade association of Canadian small businesses sounded an alarm about banks issuing more rewards cards, which are costlier for merchants to accept, and also warned of looming changes in Canada's low-cost Interac PIN-debit network (Digital Transactions News, Sept. 4). Adding to the sense of intrigue, the Toronto Globe & Mail on Monday published a story based on an interview with Mark O'Connell, Interac Association's chief executive, saying the not-for-profit network is talking with the government's Competition Authority about the possibility of restructuring into a for-profit entity. The financial institution-owned Interac fears it could fall behind in payment-network competition now that Visa Inc. and MasterCard Inc. have changed from bank to public ownership, according to the newspaper. McConnell, however, said Interac is considering all its options and would not say if the network plans an initial public offering of stock. Under a 1996 agreement with the government, which had accused the network of abusing its position in the payments market, Interac is limited to charging its members for just its costs. Merchant acquirers charge merchants flat fees to accept Interac at the point of sale. The RCC says in a release that it and a “coalition of like-minded associations” launched the StopStickingItToUs campaign to fight “skyrocketing credit card fees on all Canadians,” fees they claim amount to $4.5 billion annually. The coalition is making a petition and other materials available on the Web site for members so that they may contact members of Parliament. The RCC also released results of an August poll of 1,000 consumers by Nanos Research saying that 55% of Canadians have a poor understanding of credit card fees, but that 63% believe card fees are increasing with no noticeable increase in value. The Canadian Federation of Independent Business, which has more than 100,000 small-business members, on Wednesday issued a release reiterating the main points made by Catherine Swift, the group's president and chief executive, last week in a letter to members?that banks are issuing more rewards credit cards, which carry higher interchange rates that non-rewards cards, and that U.S.-style, percentage-based debit interchange could be coming to Canada as Visa and MasterCard eye the market (Digital Transactions News, Sept. 5). In a statement Wednesday, Visa Canada says, “Since Visa debit cards are not issued in Canada, interchange rates have not been set. Any speculation about debit interchange rates is both premature and inappropriate.” The statement also says that Visa in March introduced its premium Infinite credit card in Canada for its members to offer as they compete with American Express Co. for high-spending customers. “These consumers are often retailers' own best customers, and value the ability to use their preferred card at the point of sale,” the statement says. MasterCard in a statement says that “neither the CFIB nor the RCC have discussed the question of MasterCard's possible entry into debit payments in Canada with MasterCard. As such their statements are founded on rumor and speculation at best or a complete lack of information at worst. It is premature and irresponsible for anyone to incite fears that are unfounded.” MasterCard, however, seems to indicate it's got its eye on the Canadian debit market. “In the past both the CFIB and the RCC have consistently argued that open markets and competition promote increased choice, innovation, and competitive prices,” the statement says. “We question how anyone could see a lack of competition in the debit arena as a positive for merchants or consumers, but are particularly surprised by such statements coming from these organizations.” Regarding acceptance costs, MasterCard's statement also says, “contrary to the statements made by the CFIB and the RCC, there have always been different types of cards in Canada with different pricing structures. And just as retailers and independent businesses adjust prices from time to time in response to various market circumstances, merchant fees require adjustment as well. In fact, not all of the recent adjustments resulted in increased cost to the merchant.” While details about how the debit market may change are unknown, banks are looking to generate more money from debit card issuance, says payments consultant Philip Andreae, president, Philip Andreae & Associates, Markham, Ont. “The debit issuers in Canada want to move from a transaction-based model to an interchange-based or ad valorem model,” he says. “Obviously [retailers] are kicking back.” The turmoil about interchange and debit is not only a result of Visa and MasterCard's ownership changes in the past two years, but also stems in part from the coming “chip-and-PIN” system under which Canadian credit cards will have chips and use PINs for added security, Andreae notes. Chip cards create more options, including the possible combination of credit and debit on one card.