Divisions over credit, debit card code of conduct
Tara Perkins
From Monday's Globe and Mail Published on Sunday, Jan. 17, 2010 7:52PM EST Last updated on Monday, Jan. 18, 2010 10:49AM EST
Ottawa's decision to adopt a code of conduct governing credit and debit cards has pitted major players such as Visa Canada against a number of business groups.
Some companies, such as Visa and Moneris, are warning the government it could delay or even kill competition in the debit card market, now largely run by the Interac Association, if it forges ahead with the nine-point code. On the other side, groups such as small businesses and retailers say the code must be implemented as quickly as possible lest costs rise for both stores and consumer.
Monday is the final day for banks, credit card companies, consumer groups, retailers and others to make their submissions to the government on the proposed code, which has proved highly controversial.
The most controversial part of the code, based on recent talks and submissions to the government, is one that would give retailers the ability to choose which types of debit cards they'll accept. In cases where one debit card is configured so that it could be used on two networks (such as the Interac network or the Visa network), the merchant will be allowed to route the sale over the network that charges it the lowest fee.
As it developed the plans for its debit system in Canada, Visa had been working under the assumption that consumers would choose, at the time they were entering their personal identification number, or PIN, whether they wanted the sale to go through Visa or Interac.
“There are a couple of problems with merchant choice,” says Tim Wilson, chief executive officer of Visa Canada. “From a pure technology point of view, we don't believe that this could be implemented. And if there is a solution to allow what [the Department of] Finance is proposing, the time frames for implementation that we've heard are somewhere between five and eight years and the cost is in the multiple tens – if not hundreds – of millions of dollars.”
Fern Glowinsky, general counsel at Moneris Solutions Corp., which processions billions of debt and credit card transactions each year for Canadian merchants, said that moving to a system where merchants could route transactions different ways “would require new standards and it would require new hardware, and that would be a really, really big undertaking.”
Ottawa unveiled the code of conduct in November. Finance Minister Jim Flaherty said it would promote fair businesses practices, and ensure that merchants and consumers clearly understand the costs and benefits of credit and debit cards.
A number of consumer groups, such as the Montreal-based Option Consommateurs, say the code does not do enough to protect consumers and are calling on Ottawa to create a law that governs electronic payments.
The code of conduct was first proposed by the Canadian Federation of Independent Business (CFIB), which feared payment costs would rise once the credit card giants break into the debit market. MasterCard already has some debit cards in the market, while at least one major bank has delayed the launch of Visa debit cards as it awaits clarity from Ottawa.
“There are plans pending and in the works with both Visa and MasterCard, and so the marketplace could be radically different within a few months,” Dan Kelly, a spokesman for the CFIB, said. “That's why it's absolutely imperative that Finance move fast.”
The CFIB wants to see a final code within 30 days.
“Without the code of conduct, merchants are essentially powerless,” Mr. Kelly added. “These decisions will be made largely between the banks and the credit card companies, and average consumers and merchants will be nearly completely excluded from the debate and will very quickly see debit card costs rise to the level that they are in the U.S., which are, without any exaggeration, 10 times higher than what is paid in Canada today.”
Merchants currently pay a flat fee, something in the neighbourhood of 7 cents, each time a customer pays with a bank card and the transaction goes over the Interac network. Visa plans to charge a flat fee of 5 cents plus a percentage of the amount spent. For example, if a consumer uses Visa debit to pay for groceries or gas, the retailer will pay 5 cents plus 0.15 per cent of the total bill.
John Lawford, a spokesman for the Ottawa-based Public Interest Advocacy Centre, said the code does not tackle the issue of fees.
“Our overall concern is that consumers are stuck between the two sides,” he said. “At the end of the day, we do have trouble with any system where the consumer is the one who is paying and doesn't have control over which account or network it's going through.”
This is one of those rare markets where more competition will like mean the price goes up, he said.
Mr. Kelly said that industry players are now discussing the possibility of outlawing debit cards that would work on multiple systems, so-called co-badged cards.
If each card could only be used on just one network, the payments companies such as Visa and Interac would have to convince consumers that they should obtain cards that can be used on their system.
“If players are putting up too much of a struggle, and suggesting that this is going to take either years to put in place or is impossible, one of the other options is to simply put a blanket prohibition on co-badged cards,” Mr. Kelly said.
Coming: Debit Card Transaction Code, possibly higher fees
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