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Giving the bank card networks a taste of the medicine they’re getting in the U.S., Canada’s Competition Bureau on Wednesday took action against Visa Inc. and MasterCard Inc. rules against surcharging and honor-all-cards requirements intended to prevent discrimination by Canadian merchants against credit cardholders.
“Visa and MasterCard’s anti-competitive behavior hurts businesses and consumers alike,” Melanie Aitken, commissioner of competition, said in a statement. The rules, she said, particularly harm small and mid-size businesses. “Without changes to the rules, merchants will continue to face high costs for credit card acceptance, while consumers, even those who use lower-cost methods of payment like debit or cash, will continue to pay higher prices.”
The Competition Bureau, an independent law-enforcement body, filed a lawsuit, or “application,” with the national government’s Competition Tribunal following a formal investigation that began in April 2009 at the request of merchants and trade groups. The application challenges the networks’ rules under the price-maintenance provisions of the federal Competition Act. The Bureau said the rules have effectively eliminated competition between Visa and MasterCard, which account for more than 90% of Canada’s credit card transactions, for merchant acceptance of their branded credit cards. “Merchants in Canada pay an estimated $5 billion annually in hidden credit card fees,” the Bureau said.
Visa and MasterCard both denounced the action and said they plan to fight it. MasterCard in a statement said its no-surcharge rule has been in place for 35 years and “protects consumers by preventing merchants from imposing an additional fee on consumers who choose to pay with a MasterCard card.” MasterCard added that its honor-all-cards rule “prevents merchants from picking and choosing which MasterCard credit cards they will accept. If the Bureau were successful in challenging this rule, it would mean that consumers would not know if their MasterCard credit cards would be accepted until they attempted to make a purchase, even though the merchant displayed the MasterCard acceptance logo.”
Visa cited a 2009 survey by the Consumers Association of Canada that said 90% of Canadians oppose surcharging, with 75% strongly opposed. “Visa’s policies do not preclude retailers from offering an incentive to customers to use different forms of payment and offering discounts to consumers who pay with the retailer’s preferred payment method whether it be cash, check, debit or another credit card payment network,” a Visa statement said. Visa also wondered why the Bureau is “ignoring higher priced competitors such as American Express.”
The Retail Council of Canada, not surprisingly, endorsed the Competition Bureau’s action and agreed with its assessment that Canada has some of the highest card-acceptance costs in the world. “This is the beginning of the end for the Wild West mentality of Canada’s unregulated payments industry,” Diane Brisebois, president and executive, said in an RCC news release. David Wilkes, senior vice president of the Canadian Council of Grocery Distributors, said in the same release that, “This is an important acknowledgment that the monopolistic practices of the payment industry are costly to consumers and retailers.”
The Competition Bureau said the honor-all-cards rules force merchants to accept cards “that impose significant costs on merchants, such as premium cards.” The Bureau noted that many countries have taken steps to reduce the card fees merchants pay. Canadian merchants pay 1.5% to 3% of the sale to accept credit cards, nearly twice as much as merchants do in Europe, New Zealand, and Australia, though not quite as much as U.S. merchants, according to the Bureau.
William F. Keenan, chairman and chief executive of Wilmington, Del.-based payments consultancy DeNovo Corp., says he isn’t surprised by the Canadian action, given the challenges to card networks in other countries. “They’re riding a wave,” says Keenan, whose firm does business in Canada. But he says regulators everywhere fail to see that consumers still have many payment choices and that credit cards in particular, for a small price, generate sales merchants wouldn’t otherwise have. “I think the point that all the regulators are missing in all markets is they’re looking kind of at an intra-category competition, such as Visa vs. MasterCard,” Keenan says. And in their quest for lower acceptance costs, “Retail communities are getting really greedy, in my opinion,” he says.
Earlier this year, Canadian merchants convinced the government’s Department of Finance to adopt a “voluntary” code of conduct, a code the government said it would seek to formalize in law if industry companies didn’t abide by it.
In the U.S., networks and debit card issuers are awaiting imminent regulations from the Federal Reserve on debit interchange and transaction routing. Visa and MasterCard recently settled with the Department of Justice over merchants’ ability to steer customers to other payment forms, but American Express is fighting the DoJ in court. Earlier, as a result of a merchant lawsuit that included Wal-Mart Stores Inc., Visa and MasterCard dropped the sections of their honor-all-cards rules that forced merchants to accept their signature debit cards if they accepted credit cards.
