Canada has never had choices when it came to debit card companies – it was Interac or nothing. But now international credit card giants Visa and Mastercard are poised to offer debit cards in Canada, perhaps as soon as in the next year – and small business are worried about the impact this move might have on their debit card fees.
Why Canada? Interac and the Debit Card Monopoly
A federal decision made in 1996 made Interac a non-profit company, co-owned by 64 banks, credit unions, and other companies. This order prevented any member of the association behind Interac from restricting access to the debit card network – but it has also made it difficult, nigh impossible, for Interac to keep up or compete in the industry: All 64 members of Interac have to agree on any changes,new programs, or products that might affect fees.
Despite this limitation, Interac has done well for itself. Canada is one of the biggest debit card markets in the world, second only to Sweden. Nearly three and a half billion Interac "direct transactions" took place in 2007 – namely, in-store purchases – which is where the money is to be made in the debit card business.
Mastercard and Visa and the Debit Card Scene
At present, the name Interac is used synonymously with debit – as in, "Do you take Interac?" but that could change very soon. Tom Wilson, the head of Canadian Visa, says, "We would love to do it this year," although he accedes that "launching a new payment product is a huge technological undertaking for the banks."
Because of the restrictions of the 1996 consent order, Interac presently isn't able to compete with offers of debit card points or cards that can be used in foreign countries. Interac has already appealed to the federal competition bureau, the source of the decision, to amend parts of the order.
Why Consumers May Regret the New Debit Card
With little competition possible from Interac, Mastercard and Visa would like to sweep in with new, innovative debit card programs that offer points, access to funds while traveling, and a variety of different debit card access options to fix what Kevin Stanton, President of Mastercard Canada, describes as a "broken" system.
The changes could be seamless in some instances, since the new credit card machines designed to read chip cards are also able to process Mastercard and Visa debit cards.
The fly in the ointment? Costs for business that accept debit card payments could go up, even in this bad economy, to an estimated double or triple what they are presently. And those fees will inevitably be passed on to consumers. If Interac gains permission to no longer act as a non-profit, it too could begin raising fees to the same range as Visa and Mastercard.
In light of these concerns, some politicians and small business are considering appealing to the federal government to introduce new regulations on the payments industry.
Source
Flavelle, Dana and Rita Trichur, "Taking a swipe at the debit card competition," Toronto Star, February 21, 2009.
Victoria Anisman-Reiner - Victoria Anisman-Reiner is a freelance writer with extensive experience in holistic health care and animal training.
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