Business groups say higher user fees for swiping the stripe will damage economy

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BY ALAN COCHRANE
TIMES & TRANSCRIPT STAFF

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Proposed changes to Canada's credit card and debit card systems could have a devastating effect on our economy and should become an election issue, says the retail council of Canada.

"We're big-time serious about this," says Derek Nighbor, senior vice-president for national affairs for the business watchdog group. "If we have to fight this, we will go right to the end."

Nighbor said two of the major credit card companies -- Visa and MasterCard -- currently control about 80 per cent of the Canadian market. And if Interac -- the non-profit co-operative that manages our debit transactions -- gets the green light to change from non-profit to profit, it could change the way transaction fees are levied on business. Eventually, it could lead to higher prices for consumers who use either credit cards or debit cards.

The retail council, along with various business groups, is banding together and preparing for a fight. They want the government to step in and regulate the changes so businesses and consumers will be protected from monopolistic transaction fees.

"We are on the edge of seeing some new developments in the debit front," Nighbor said.

Over the last 10 years, Interac has become a convenient way for consumers to withdraw money from their accounts and use debit cards to pay for goods and services in our economy. The popularity of debit cards has grown in Canada to the point where many consumers rarely carry cash and prefer to swipe the stripe for everything from a pack of gum to a full load of groceries and everything else they spend money on. Just about every business now has debit card capability and in a city like Metro Moncton -- where retail is an important part of the economy -- higher fees for plastic could have a widespread impact. Last year, New Brunswickers used their debit cards for more than 83 million transactions.

As the system stands right now, businesses are charged a flat rate of about 12 to 13 cents for using the system and consumers rarely have to pay user fees. But Interac has applied to the Competition Bureau of Canada to change from a non-profit to a for-profit private system. The Retail Council and the Canadian Federation of Independent Business is afraid that if this application is approved, that flat fee may become a percentage of the total transaction. That would mean businesses would have to pay more every time a customer swipes the stripe. The money would go to the service provider.

Andreea Bourgeois, spokeswoman for the Moncton office of the Canadian Federation of Independent Business, said yesterday there is a reason why debit cards are not as popular in the U.S. as they are in this country. In the U.S., merchants pay a percentage of the transaction, as opposed to Canada where they are charged a flat rate per transaction.

She cited this example. If a customer in Canada goes into a store and buys $1,000 worth of merchandise using a debit card, the business is charged a flat transaction fee of about five to 15 cents. In the U.S., that same $1,000 transaction would cost the business about $6.50.

"We have a system now that works really well," Bourgeois said. "If these changes happen, it will be really bad for the stores here."

But there is a bigger worry.

"If Interac goes public, there is the potential that it could be purchased by the credit card companies and the fees would go through the roof," Nighbor said.

Higher fees levied on businesses who accept debit and credit card could mean they would have to cut back on staff, advertising budgets, donations to charity and increase prices for consumers in order to make ends meet.

And it's not just business. Nighbor said charities who take credit card payments for donations will suffer; as will government departments who accept them for various fees, tax bills and vehicle registrations. And he said it was really ironic to think that political parties that accept plastic for campaign contributions could lose money on user fees they could have prevented by fighting for better legislation and regulation.

Nighbor said the competition bureau is currently considering the proposal from Interac, but both sides are staying quiet on the matter.

Spokeswoman Patricia Wong said the competition bureau is required to conduct its work in confidentiality and could not comment on the matter.

Tina Romano, a spokeswoman at the Interac headquarters in Toronto, said some "exciting changes" are pending but could not say whether they would result in higher fees for businesses or consumers.

"Currently, we operate on a cost recovery basis, so we do not directly charge fees to customers or merchants," Romano said in an e-mail to the Times & Transcript. "The only fee we charge is a member fee -- members pay the association a per transaction fee sufficient to cover operating costs. The fee varies annually based on our operating expenditures."

She said members who offer Interac services to their customers and merchants are able to charge fees.

"For example, for the Interac Direct Payment service, acquirers charge merchants a fee to offer the service, and this fee varies according to individual contracts."

She said any changes would be geared toward staying competitive in the marketplace.

The Interac Association was created in the mid-1980s as a co-operative of banks, trust companies, credit unions, technology and payment companies. It started out as a way for customers of financial institutions to withdraw money from automated tellers and have the cash directly debited from their personal accounts.

Interac direct payment, which allows consumers to pay for purchases with their debit cards, was made available to retailers across Canada in 1994. Canadians are now some of the world's most active debit card users. In the 1990s, the Competition Bureau accused Interac and its members of abusing their power. So Interac signed an agreement in 1996 that it must be managed on a not-for-profit basis and only charge fees that cover its costs. Interac has said the agreement has constrained its services, and went to the Competition Bureau looking for a way to change the rules so it can be more competitive against credit card companies.

The Interac Association is now moving to a new CHIP technology card, which it says will make a safe payment system even more secure. Debit cards will begin to contain an embedded microchip, which will put the power of a computer onto the card. The microchip will give the card the ability to store and process data, providing an additional layer of security.

The Retail Council of Canada and the Canadian Federation of Independent Businesses claim that major credit card companies are looking to the lucrative Canadian market to make piles of profits by charging higher user fees on so-called "specialty" credit cards. The two business groups also insist the credit card companies want to expand their operations to include debit cards. Both Visa and MasterCard denied this in statements issued last week.