Canada is the latest country to get caught up in the card reform
craze, although the country’s legislators appear to have taken a
rather more measured approach than their counterparts in the US –
and Australia.

In early July, the Canadian Standing Senate Committee on Banking,
Trade and Commerce published a wide-ranging report examining card
fees and interchange, oversight and merchant surcharging following
days of witness testimony from vested interests including
merchants, banking groups and the payment networks Visa and

The report’s major recommendations include a proposal to ban
percentage-based debit card interchange for three years – something
that would be a major blow to Visa and MasterCard as they look to
make inroads into the country’s debit space, which has so far been
the stronghold of the national debit and ATM scheme Interac.

The recommendations came in response to complaints from Canadian
merchants that Visa and MasterCard debit cards would cost them more
to accept than Interac cards. Interac, which has set its debit card
interchange fee at zero, told the Senate committee that it welcomed
competition from its rivals, but only on the basis of it being
allowed to change to a for-profit company so that it could “compete
on a level playing field”.

Interchange a contentious point

MasterCard indicated that it has not set an interchange fee for its
Maestro debit card, and that its switch fees are currently set at
C$0.005 ($0.004) per transaction, or 37.5 percent less than the
C$0.008253 currently charged by Interac.

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Visa also informed the committee that its entry into the Canadian
debit card market will include an interchange fee, calculated as a
flat fee and as a percentage of each transaction.

In Visa’s view, an interchange fee of zero “is unsustainable in the
long-term” due to the costs of funding innovation and providing
services such as buying goods online, through mail order or by

Visa acknowledged that its proposed interchange fee may cause its
debit product to be more costly than competing debit cards, but the
company said merchants can choose to not accept its debit cards if
the cost is too high.

However, the committee’s report concluded: “Competition between
Interac and two well-financed and market-savvy competitors such as
Visa and MasterCard will marginalise Interac, and either drive it
out of business, regardless of its governance structure, or lead to
a merger or acquisition that would have the effect of limiting
competition in the debit card market to Visa and MasterCard.

“At that point, debit card merchant fees would likely do what they
have done elsewhere under these circumstances: they would

Other proposals of the report include the establishment of an
‘oversight board’, whose mandate would be to make recommendations
by December 2009 on regulatory measures affecting credit and debit
payment systems; to monitor and publish annually information on
interchange, switch, merchant and other associated payment system
fees; and the establishment of a code of conduct for payment system

The report also recommends that merchants should be permitted to
bargain collectively regarding payment card fees.

Another recommendation is that merchants should be allowed to
surcharge; also, that the ‘honour-all-cards’ rule should be

For its part, Visa told the committee that it would not enforce an
‘honour-all-cards’ rule for debit cards on merchants that accept
its credit cards.

Other recommendations follow similar steps taken in the US, such as
credit card limits being increased only with the cardholder’s
consent, and the allocation of payments to debts with the highest
interest rate first.

The Australian example

However, in response to merchant clamours for Canada to adopt
Australia as a template of regulatory intervention into the payment
card industry, the committee sounded a cautious note.

It said: “We are not convinced that it is a simple matter to adapt
the Australian regulatory approach – or the approach of any other
country – to the Canadian context, as some witnesses

“Just as the environment in which the credit card system is
operating in Canada has changed over time, it is also the case that
each country has a unique environment in which its credit card
system must operate.”