A new phase of competition in Canada’s
credit card sector looks to be underway after the country’s
Competition Bureau gave the go-ahead to Canadian banks to issue
both Visa and MasterCard-branded credit cards, reversing a policy
of Canadian banks only being able to offer one or the other.

Sheridan Scott, Commissioner of the Bureau, said in a letter to the
country’s major financial institutions that allowing banks to issue
both brands would usher in greater choice for consumers and
increased competition in the marketplace. In her letter, she stated
that the recent transitions of Visa and MasterCard from
member-owned associations to publicly-held entities was a major
factor in the decision to reverse the policy, along with other
recent developments in the credit card industry.

Canada: credit cards issue“In the past,
the potential for credit card issuers and acquirers to issue credit
cards or acquire transactions for more than one of the two major
credit card networks had been restricted by the rules of the
Canadian credit card associations,” she said.

“These rules addressed potential concerns of the Bureau because
they eliminated any likelihood of conflict that either issuers or
acquirers could be a member of both associations and thereby be
able to simultaneously influence the corporate governance and
competitive decisions of both associations.”

Conflict concerns brushed aside

Scott added that because of the recent restructurings, issuers
and acquirers are no longer involved in most of the governing
decisions of the major credit card networks.

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However, Scott added a note of caution to issuers, saying the
Bureau would step in if a dominant or major supplier in the market,
such as a payment systems network, induced issuers to deal
exclusively with the supplier, which would result in competition in
the marketplace being weakened.

MasterCard looks to increase market share

Visa is the largest payment network in Canada, and its cards are
issued by some of the country’s largest banks, including CIBC and
Toronto Dominion, while National Bank of Canada and Bank of
Montreal issue MasterCard.

In a statement, MasterCard applauded the Bureau’s decision:
“According to industry statistics, MasterCard has enjoyed the
highest increase in purchase volume, card growth, and number of
transactions, making MasterCard the fastest growing payments brand
in Canada. A dual market will allow MasterCard to build on this
trend by providing greater opportunities through access to new
issuers and cardholders.”

The Bureau’s decision will likely not result in immediate
issuance of new brands of cards while agreements are negotiated
between the networks and the banks, but over the next couple of
years it will mean more intense competition between the two
networks and the banks themselves as they look to roll out new card
offerings. This is at a time when Canada is migrating to chip
technology which will allow more innovative product launches.

The Bureau’s move is the latest major development to reshape the
Canadian payment landscape.

In September, the national debit and ATM scheme Interac
confirmed it was considering switching to a for-profit structure,
in order to fend off competition from Visa and MasterCard (see