Canada Will Enforce Its Payments Code with Regs, If Necessary

After five months of discussion, the Canadian government is out with the final draft of its Code of Conduct for the payments industry. The merchant-friendly code is supposedly voluntary, but proposed legislation could force it upon payments companies that don't adopt it on their own by May 17. “Payment card networks, credit and debit card issuers, and payment processors are now being invited to adopt this code,” Finance Minister Jim Flaherty said in a release Friday. “We are confident that they will do so voluntarily. Our government has, however, taken steps in Budget 2010 to ensure that we have the legislative authority to regulate the industry if necessary.” Key components of the 10-point code require that merchants be provided with clear information about interchange and discount rates; be given a minimum 90 days' notice of any new fees and fee increases, and be able to cancel contracts without penalty should fees rise or new fees be introduced. Merchant statements are supposed to include detail about effective discount rates, interchange, and fees, and the number and volume of transactions for each type of payment transaction. Merchants also will be able to accept a payment network's credit cards without having to accept its debit cards, and vice versa. Discounts are allowed for any payment method. Regarding the controversial issue of debit cards, the code requires that payment card networks ensure that cobadged, or cobranded, debit cards are “equally branded.” In other words, networks aren't supposed to give preferential treatment to one brand over the other when a debit card has more than one network logo. This provision seemingly would prevent banks that issue Visa and MasterCard-branded debit cards from downplaying the Interac Network debit brand, which currently has a near lock on Canada's debit market. Canadian merchants like Interac because of its low cost, and it's very popular with consumers. Merchants fear that banks, especially Visa issuers, are about to unveil new debit cards on the international networks that would cost them more and undercut Interac, which issued a release applauding the code. “Payment card networks will not include rules that require that issuers give preferential branding to their brand over others,” the code says. “To ensure equal branding, brand logos must be the same size, located on the same side of the card, and both brand logos must be either in color or black and white.” Other parts of the code address premium cards, another sore point with merchants. Retailers say the proliferation of rewards credit cards, which carry higher interchange rates than standard cards, is raising their card-acceptance costs. The code aims to prevent issuers from putting credit and debit functions on one card. Issuers also aren't supposed to give premium cards to consumers unless they apply for or consent to them. The code further says issuers must “target premium cards at a specific clientele who meet specific spending and income thresholds.” William F. Keenan, a Wilmington, Del.-based payments consultant familiar with the Canadian card market, says the code doesn't represent a major change in the payments landscape. “It's not going to be a re-composition of the industry,” Keenan, chairman and chief executive of DeNovo Corp., tells Digital Transactions News. “You've injected more merchant input, but the merchant is controlled by the consumer.” Issuers will be minimally harmed, if at all, he says. But if merchants make credit cards less attractive, they might lose some sales, he adds. The idea for the code came from the Canadian Federation of Independent Business, according to the National Post newspaper. The CFIB issued a release Friday saying that the “small-business community applauds” the code. Canada's banks mostly lay low, though one of the big banking companies, TD Bank Financial Group, said it was pleased with the final draft. “We support this code of conduct for the fast-changing Canadian payments market. TD has supported this concept from the beginning and we will abide by the code,” Tim Hockey, president and chief executive, said in a news release. “We believe that this code will give merchants a greater voice in the payments market, while also balancing the interests of the other participants in this industry.”