Regulators Seek Stronger Authority over Card Payments in Canada

Canadian Finance Minister Jim Flaherty submitted his budget plan to Parliament late last week, and his proposals have merchants celebrating. That's because the government is floating the idea of regulating the payment card networks and, by implication, credit and debit card interchange. “There was good news for retailers in yesterday's federal budget, which clearly addressed concerns voiced by Retail Council of Canada (RCC) regarding the fees charged to merchants for credit card acceptance and the imminent entry of Visa and MasterCard into Canada's debit market,” a posting on the RCC's Internet home page said Friday. Canadian merchants are upset not only by rewards credit cards and their high interchange, but also about the controversial plans of banks to issue Visa- or MasterCard-branded debit cards. Merchants say these cards will cost them much more to accept than the Interac PIN-based cards that now dominate Canada's debit market. To press their views, the RCC in 2008 formed the StopStickingItToUs coaliton (Digital Transactions News, July 6, 2009). Included in Flaherty's 451-page budget plan is a proposal to move ahead with a much-discussed code of conduct for payments-industry participants. But compliance with the code might not be so voluntary if Flaherty's proposals get legislative approval. The government is asking for authority “to monitor compliance with the code,” the budget document says. “The government will also propose legislation that will provide the Minister of Finance with the authority to regulate the market conduct of the credit and debit card networks and their participants, if necessary.” Flaherty also is proposing that the government appoint an independent task force to “conduct a comprehensive review of the Canadian payments system and make recommendations to the Minister of Finance,” the document says. The task force would review the payment system's safety and soundness, efficiency, competition, and “whether there is sufficient innovation in the system,” among other things. The panel would submit its report by the end of 2011. Visa Inc.'s Toronto-based Canadian unit, which strongly supports the concept of Visa-branded debit cards as well as rewards credit cards, issued a carefully worded statement in response to the budget proposals. “Visa Canada is encouraged by today's federal budget,” the statement says. “We believe the proposed budget continues to position Canada as a leader in the financial-services sector and that this budget fosters competition and innovation. We look forward to ongoing discussions with the government concerning the electronic payments industry to promote transparency, choice, and fair business practices that benefit both merchants and consumers across the country.” A spokesperson for MasterCard Inc. in Canada did not respond to a Digital Transactions News request for comment. The Toronto Star reported MasterCard as saying “it is not recommending any dramatic changes to the draft.” William F. Keenan, a Wilmington, Del.-based card-industry consultant who has worked with Canadian clients for years, says that Canada's highly concentrated banking industry probably will close ranks to lobby for a deal with the government that it can live with. “Knowing the Canadians, the banks will probably be responsive to that threat,” says Keenan, chief executive of DeNovo Corp. Flaherty also is proposing to let credit unions operate on a national basis. Canada's credit unions typically operate in only one province.