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The Visa Debit train in Canada picked up speed this week when one of the country’s major banks, TD Canada Trust, introduced a debit card that uses the Visa network for card-not-present and international transactions. TD Canada Trust brings to three the number of Canadian banks offering Visa Debit since the product debuted in 2010 amid a storm of merchant complaints about the higher costs to accept major-brand debit cards compared to Canada’s long-established Interac-branded debit card.
“We’re really excited that TD has launched it now, we’re clearly feeling the momentum in the market,” Sue Whitney, head of new products at Toronto-based Visa Canada, tells Digital Transactions News. “We think other issuers are probably paying attention to this.”
Canadian Imperial Bank of Commerce introduced its CIBC Advantage Visa Debit card in late 2010, but the next issuer didn’t come along until May, when RBC Royal Bank introduced its RBC Virtual Visa Debit card. Whitney wouldn’t say which bank might be next, but adds: “We’re always busy talking to issuers, there’s lots of interest.”
The Canadian government’s Department of Finance proved attentive to merchant interests during the debit debate. After consulting with major players, the department in 2010 issued a “voluntary” 10-point code of conduct for the payments industry that includes a ban on a debit card having applications from more than one network to process each type of domestic transaction. That means, for example, that if a Visa issuer wants its cards to have point-of-sale utility in Canada, its cards can use either Visa or Interac, but not both networks. That’s a sharp difference from U.S. debit cards, which typically can access the Visa or MasterCard networks in addition to at least one electronic funds transfer network for PIN-based card-present purchases.
CIBC’s card and the new TD Canada Trust Access Visa Debit Card retain Interac for in-store purchases but route transactions through Visa for Internet and telephone-based purchases in Canada. And when cardholders travel, the two banks’ cards access the Visa network at the point of sale. That’s a big advantage over Interac, which while ubiquitous in Canada has no POS utility elsewhere except for U.S. merchant locations in the NYCE EFT network.
With Canada’s payment system now mostly converted to the EMV chip card standard, the CIBC and TD cards have chips and magnetic stripes. RBC’s product is only for card-not-present sales. Cardholders get a plastic card with account information but it doesn’t have a chip or mag stripe that would make it usable in stores. The TD card offers Interac's Flash contactless technology as well as a contact chip; the CIBC card has only a contact chip.
Whitney notes that debit had been shut out of the online market in Canada before Visa Debit came along. Consumers who preferred to use debit cards for Internet purchases instead had to use a credit card or PayPal, or they “just didn’t shop,” says Whitney. “We’ve opened a new channel … we’ve given them a choice.” Whitney would not say how many Visa-branded debit cards have been issued so far.
William F. Keenan, chief executive of DeNovo Corp., a Wilmington, Del.-based marketing and card consultancy that has done work with Canadian banks, says the attraction of major-brand debit for issuers is higher interchange revenue than available through Interac as well as the ability to tap into card-not-present sales and the high proclivity of Canadians to travel. And with the code of conduct in place, merchant complaints about being forced to pay higher acceptance costs seem to have been addressed. “I don’t think you’re going to see the merchant outcry” as major-brand debit cards proliferate, he says.
Keenan adds that Visa probably would have a tough time trying to impose a sizable increase in interchange rates. “There's a lot more regulatory supervision and a lot more involvement by the merchant community,” he says.
The Department of Finance threatened to make the voluntary code mandatory if banks and other major industry players didn’t follow it. Virtually everyone did. Still, Keenan says customers might start asking to use their Visa debit cards in Canadian stores, which over time might undermine the ban on a card being able to route transactions through more than one network in each acceptance channel. “If I had a crystal ball, [I'd say] I think they'll be transitioning to that because of consumer demand,” he says.
