U.S. Retailers Caution Canadian Officials Against Visa And Mastercard Entry Into Debit Card Markets
Washington, D.C. - March 26, 2009 - With Visa and MasterCard making moves to enter the Canadian debit card market, Canada is poised to repeat the mistakes made by the United States in the 1990s. Allowing Visa and MasterCard to infiltrate American debit markets has cost consumers in this country billions of dollars in excess debit interchange and impaired the expansion of the most cost effective and secure method of payment. There is no reason to expect things to be any different in Canada.
Canadian merchants currently pay a relatively low rate for debit card transactions compared to their counterparts in the United States. If Visa, and eventually MasterCard, enter Canada’s debit market, the cost of debit card acceptance for Canadian merchants will likely increase tremendously. American merchants have already seen this scenario play out in the United States where PIN debit pricing increased more than 2000% over the last decade.
Under the current system, the Canadian Interac Association charges only the actual costs of processing the transactions. Visa and MasterCard, on the other hand, charge arbitrary, and ever-escalating, interchange and acceptance fees on each card transaction to generate profits for themselves and their card issuers.
Interchange fees are passed through to merchants as a cost of card acceptance, and, totaling $48 billion, are the second largest business expense for American retailers behind only labor. As Canadian consumers and retailers struggle to cope with the current state of the global economy, a sizeable new expense will only serve to exacerbate their problems.
In the United States, merchants have no ability to negotiate these rates, surcharge for these fees, or adopt any other methods of making these fees known to consumers. This means that - as intended by the networks - interchange fees remain hidden from consumers.
Merchants, unable to absorb the full cost of these fees and prohibited from surcharging cardholders, are inevitably forced to pass on some of these costs to all customers. The worst offenders - high-end rewards credit cards, which carry particularly high interchange rates - are already infiltrating the Canadian card market. Retailers and consumers are suffering the consequences.
We support any competition that incents card networks and issuers to increase their processing efficiency. However, increased processing efficiency in the U.S. has not led to an increase in competition as interchange rates continue to go up uncontrollably for merchants and consumers. In response to speculation over Visa and MasterCard entering the Canadian debit card market, Interac has already announced plans to convert from a non-profit to a for-profit, which, if allowed, would likely result in increased interchange fees imposed on Canadian businesses. Additionally, Interac supports only PIN debit transactions, while Visa and MasterCard promote both PIN and signature debit. Signature cards are significantly more fraud-prone, and they are also the subject of much higher interchange rates, when compared to PIN debit cards, in the United States.
The influx of high-end, high-interchange, Visa and MasterCard rewards cards, and their move to infiltrate the Canadian debit card market mirrors events in the United States a decade ago. Because these decisions in the United States ended up costing retailers and consumers billions of dollars, we hope Canada is able to avoid the same mistakes, and we applaud the Canadian Parliament for opening investigations of the Visa and MasterCard credit and debit card networks. The hearings that began yesterday are a huge step in the right direction, and we hope Canadian officials will take a hard look at the results of these hearings and investigations, as well as the mistakes made in the United States, before allowing Visa and MasterCard to establish a presence in the Canadian debit card market.
The Merchants Payments Coalition (MPC), UnfairCreditCardFees.com, is a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees. For further information, please visit www.unfaircreditcardfees.com