Regulating Credit Card Processing FeesWinter/Spring 2013 Public Consultations

The cost of processing electronic payments continues to hamper the competitiveness of Canadian business.

Retail

Small Business

E-commerce

Results in reduced profit margins for merchants and higher retail costs for consumers.

Lack of robust regulatory framework

The Current Landscape

The Current Landscape

Cost of Accepting Payments

2006 Bank of Canada report

Measured the real cost of cash, debit card and credit card transactions.

The results are striking, and speak volumes about the imbalance that concerns us.

We can see that a $36 transaction costs merchants:

Debit: $0.19

Cash: $0.24

Credit Card: $0.82

The Current Landscape

Introduced in April 2010

Created non-binding rules for credit and debit card networks and their participants

VCC was meant to provide fairness for merchants

Cost of processing payments continues to increase.

New premium credit cards & higher fees for foreign cards

Loopholes being exploited to unfairly penalize merchants

VCC has failed to provide fairness for merchants

Voluntary nature of the code inherently problematic

The Voluntary Code of Conduct

The Current Landscape

The rapid emergence of mobile payments technology will dramatically alter the landscape of the electronic payments system in Canada.

Mainstream adoption of mobile payment technologies is expected within two to four years

Will lead to a complete reworking of the payments value chain.

Regulatory framework needed to protect retail and business community from new payment processing fees.

VCC insufficient moving forward

The Rise of Mobile Payments

On the Horizon

International Perspective

International Context

Australia :

Hard Cap on interchange implemented in 2003

Regulatory approach has reduced the average transaction cost of processing electronic payments

Gives merchants additional freedoms in terms of surcharging and the choice of payment instruments.

New Zealand:

2006: Commerce Commission rules against anti-competitive practices of Credit Card Companies

2009: New Rules introduced, limiting interchange fees and increasing transparency and accountability

International Regulation

International Context

Denmark:

Payment Services Act, adopted in 2009

All fees transaction fees must be reasonably priced; Limits profit margins on interchange and merchant discount rate

Granted the Minister for Economic and Business Affairs the power to specify how fees are calculated

The European Union:

2007: European Commission ruled that MasterCard’s cross-border interchange fee breached EU antitrust rules

2009: Cap on cross-border interchange fees

Transaction fees now average 1/6th of the cost of Canadian average

International Regulation

International Context

Developing robust regulations for electronic and mobile payments, options include:

Using the Australian model as a template for the imposition of a hard cap on interchange fees.

Mandating that merchants be allowed to implement surcharges for credit card transactions.

Banning the ‘honour all cards’ rules forced on merchants.

Tightening loopholes in the pre-existing governance structure of the payments system

Regulatory Options

Regulatory Options

Mandating the full public disclosure of the per transaction cost of merchant discount rates charged by credit card companies and other payment processors

Allowing consumers, at the point of sale, to observe the hidden cost to the retailer of their chosen payment method.

Developing more effective dispute resolution processes for merchants grieving the actions of payment processors and financial institutions.

Regulatory Options

Regulatory Options