CHA-CHING!
By Susanne Ruder
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THE MAIN ISSUE
The not-for-profit Interac
Association is owned by the
big banks and other financial
companies. It follows restrictions
issued by a 1996 consent
agreement that affects everything
from its governance to how it
generates revenue. Visa and
MasterCard don’t have to abide
by these same rules, which were
designed to stop big banks from
edging out smaller players in the
then fledgling debit market.
THE FALLOUT FOR RETAILERS
First are higher merchant fees.
Interac currently charges a flat
fee ( 10 cents on average) per
transaction. Visa Debit will
charge 0.25 per cent of the
transaction’s value plus a flat
fee of five cents. MasterCard’s
Maestro debit network, which is
already enabled on cards issued
by the Bank of Montreal, charges
a flat fee similar to Interac.
The Retail Council of Canada
(RCC) estimates that merchants
will pay an extra $300 million to
process debit cards next year if
Visa manages to corner just 20
per cent of the market. “This is
going to cost [retailers] so much
money that they’re going to have
a hard time maintaining prices
and remaining competitive,
especially small merchants,”
said RCC president and CEO
Diane Brisebois.
Worse, retail groups say these
introductory rates will skyrocket
once the new debit cards are
entrenched, something that has
happened in other countries.
“Merchant costs in the U.S.
right now are 10 times what we
currently have in Canada,” said
Catherine Swift, president and
CEO of the Canadian Federation
of Independent Business (CFIB).
“Visa and MasterCard make gobs
of money, and this is a way they
can make gobs more.”
Another concern is priority
routing. If a payment terminal
and card are equipped to
accept MasterCard Maestro, the
transaction will automatically
be processed over this network.
Visa Debit-enabled terminals
will reportedly display Visa as
the first option with additional
steps required to access Interac,
assuming consumers know it’s
available. Not only is that unfair
competition, but “merchants
should be able to determine
where the transaction goes,”
said Brisebois.
Retail groups also claim that
the credit card companies and
payment processors are forcing
retailers to accept the new cards
by using negative opt-out tactics
and are automatically changing
merchant agreements without
clear written consent from
the retailer.
THE BENEFITS
Visa and MasterCard say
merchants and consumers
will profit from adopting their
debit networks. “The biggest
benefit for a merchant is being
able to say that [consumers]
can pay the way they want,”
said Sue Whitney, Visa’s head
of consumer debit products
for Canada. Consumers will
be able to pay for online and
telephone purchases with debit,
and retailers can accept debit
from international travelers and
youths who might not otherwise
qualify for credit cards. The
new cards also offer consumers
enhanced security features and
technological conveniences, such
as electronic alerts and contact-less transactions.
From Visa and MasterCard’s
point of view, the bottom line is
increased choice and innovation.
According to Whitney, many
of the concerns about pricing,
contracts, technology and
communication are actually
due to the practices of payment
processors and bank card issuers
– middlemen over whom Visa has
little control. “All we’re really
doing is introducing a choice.
If the merchant doesn’t want to
take it, they don’t have to. And
competition is not so bad.”
THE VOLUNTARY CODE
OF CONDUCT
“We’re not opposed to
competition,” said Caroline
Hubberstey, director of public
and government affairs for
Interac, which has applied to
become a for-profit corporate
entity in order to gain equal
footing with the credit card
giants. Retail groups worry
this change also means the end
of inexpensive debit, though
Hubberstey said, “we’re ready to
fight the fight” by continuing to
leverage Interac’s strengths as
Canada’s low-cost option while still
introducing innovative products.
Interac and retail groups
pressured credit card companies,
payment processors, card issuers
and government for clarity and
guidance on operating principles.
In November, Finance Minister
Jim Flaherty responded with a
draft voluntary Code of Conduct
to be adopted in early 2010
following a 60-day consultation
period with stakeholders.
Its provisions, said Flaherty,
are designed to ensure that
merchants are fully aware of the
costs associated with accepting
credit and debit card payments
and allow them to freely choose
which payment options they
accept. The principles are
supported by small business and
retail groups, though many are
skeptical that a voluntary code
will be effective. “We’re one of
only two developed countries
with no oversight of this
industry,” said Swift from CFIB.
RETAILER REACTION
In the near term, some retailers
are saying “no” to the new
debit cards.
“Why would I continue to
support [credit card companies]
in entering another market where
they will become a monopoly and
abuse their power and rack up
our rates?” said Fred Pritchard,
co-founder of Golda’s Kitchen in
Mississauga, Ont. “They’re not
giving me anything that Interac
doesn’t give me.”
And some are saying “yes”
as they’re uncomfortable telling
customers which method of
payment they can use.
Retail organizations are urging
retailers who are contemplating
accepting the new debit products
to proceed with caution. Read
your contract carefully and
demand clarity about contract
acceptance, conditions and fees,
and if and how your point-of-sale
machines are programmed.
Above all, “Never feel
intimidated by a letter from a
processor, Visa or MasterCard,
or a financial institution,” says
Brisebois. “It’s your store. It’s
your decision.”
