The Canadian debit scheme Interac
has had its bid to change its status from a not-for-profit to a
for-profit entity turned down by Canada’s Bureau of Competition
Policy. Interac had wanted to change its status in order to compete
against its publicly-traded payment network rivals Visa and
MasterCard which are aiming to enter Canada’s C$163 million-a-year
debit market.

The denial of Interac’s bid means it now has
to find other ways of preserving its position in Canada’s debit
market at a time when Visa and MasterCard are making concerted
efforts to persuade Canadian banks and merchants to use their
network-branded debit propositions.

“Based on currently available information,
including Interac’s current dominant position in the market… the
bureau does not agree that the removal of the restriction against
for-profit activities by Interac would be pro-competitive, or is
necessary to allow Interac to remain competitive,” the bureau said
in a statement.

The bureau added that changes regarding
Interac’s governance structure would be permitted “as they would
maintain the necessary safeguards against anti-competitive
activity”, but that Interac must remain as a not-for-profit
entity.

Interac looks at other
options

Interac responded with
disappointment to the decision.

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By GlobalData

“We have always believed in arriving at an
effective business model… beyond a for-profit status,
particularly in the areas of governance, funding and our
organisational structure,” said Mark O’Connell, president and CEO
of Interac.

However, O’Connell added that Interac remains
“optimistic that further discussions can result in other variations
to the Consent Order [which sets out Interac’s not-for-profit basis
and organisational structure] that will enable Interac to more
effectively respond to the realities of the changing competitive
debit landscape.

“We are pleased that the Competition Bureau
will engage in discussions with us regarding these critical
issues.”

Among the ways in which Interac could change
its status could be to become a privately incorporated company.

The bureau’s decision has also been derided by
pro-merchant and consumer groups who fear that Visa and
MasterCard’s entry into the debit market will result in increased
costs of card acceptance and transaction fee levels.

In 2009, Canadian consumers carried out almost
4 billion debit transactions.

The Canadian Federation of Independent
Business (CFIB) said that the bureau’s ruling would constrain the
ability of Interac to compete on a level playing field.

“Since the mid-1980s, Interac has served
Canadian consumers and businesses very well with its low-cost debit
network, and small businesses in particular will be outraged if it
is permitted to be substantially diminished or eliminated by these
new market entrants,” said Catherine Swift, president of the
CFIB.

Swift also cited examples of Visa and
MasterCard entering debit card markets in other countries, which
she said has often edged the domestic player out “in one way or
another” and caused debit payment processing costs to rise.

Meanwhile, the Canadian government is pressing
ahead with plans to introduce a voluntary code of conduct for
credit and debit card providers which will focus on promoting fair
business practices. The code would enable merchants to choose which
payment options to accept.

The Canadian Code of Conduct for the Canadian
Credit and Debit Card Industry is being circulated for comment and
the final version is expected to be released within the next
weeks.

Canada

Interac statistics

Year

IDP Terminals

Transactions (m)

Value of transactions (C$bn)

2008

630,534

3,705

168

2007

603,248

3,451

156

2006

591,939

3,293

148

2005

571,353

3,070

137

2004

546,022

2,819

124

2003

520,563

2,590

116

2002

494,921

2,404

104

2001

463,244

2,236

94

2000

438,179

1,960

85

1999

406,050

1,661

72

1998

393,730

1,355

58

1997

330,530

1,003

44

Source: Interac