With the debate raging in Ottawa about credit card rates, you may have overlooked another issue in the mix: the uncertain future of your bank debit card.
Let's put it this way. Don't get too used to calling your debit transactions "Interac," because Visa Canada and MasterCard Canada may yet challenge the monopoly held by the national not-for-profit Interac Association, a co-operative payment system created in 1984 by the country's big banks and merchants.
Many Canadians don't realize that Interac is a low-cost anomaly.
In other countries, high-fee, for-profit systems from companies such as Visa, MasterCard and China UnionPay reign. Now the first two are considering a foray into Canada. Visa has held talks with Canadian banks and retailers, said Tim Wilson, head of Visa Canada. Visa debit is used by 844 million cardholders in 170 countries, according to company reports.
"The bank card in Canada has been tremendously successful, but it's relatively plain vanilla," Mr. Wilson said.
MasterCard said recently it will "create competition in the Canadian debit market where it has never existed" with its debit system, Maestro, used by 652 million people in more than 100 countries. Under the system, Canadian customers could use their debit cards abroad, and retailers here could accept foreign cards.
Interac is in a fight for its life, says Mark O'Connell, its president and CEO. He maintains it is a world-class, low-cost payment system that won't survive unless its regulatory structure is altered by the Competition Bureau.
Interac should be "a more independently run commercial organization that has the ability to innovate," he said. As it stands, the not-for-profit association can't raise funds for research and development of new products, such as high-tech terminals.
"We cannot let such a successful debit system continue in this shackled fashion, as the market changes around it," Mr. O'Connell said. "I think it would be a tragedy to have this made-in-Canada success story obviated by U.S. card companies."
Analysts say that Visa and MasterCard can enter Canada with new products and set up lucrative fee structures for all involved - themselves, the banks, and the middlemen.
For now, the big card companies have taken pause. Mr. Wilson at Visa Canada said in Toronto recently that additional regulation on debit providers may limit competition and inhibit innovation, yet he indicated he might introduce Visa's debit system to Canadians anyway this year.
Debit is not the preferred method of retail payment in Canada, though we are the second-highest-per-capita users, after Sweden. We still love our credit cards.
Conversely, debit is the preferred payment option for retailers, over the risk and slightly higher cost of handling cash, according to a 2006 Bank of Canada survey of merchants. The least-favoured method of payment was credit cards, in part because of the high processing fees - on average, retailers pay only 2 per cent to 4 per cent of a credit transaction, compared with 12 cents per debit transaction.
Those low debit fees could rise quickly if Visa and MasterCard enter the market, said Catherine Swift, president of the Canadian Federation of Independent Business.
"We've talked to business groups in the U.S., and their advice was, if you can possibly prevent it, don't let Visa and MasterCard in," she said. "In the U.S., you can understand why it took hold ... they have many regional and community banks. They never had the national banking network we've had from relatively early days in Canada."
She scoffs at Visa and MasterCard's suggestion that they want to enter the market to better serve consumers.
Accepting Visa and MasterCard debit may indeed create competition, but it would also raise consumer prices, said Peter Woolford, vice-president of policy and research for the Retail Council of Canada.
The lobby group has created a special campaign, at the website StopStickingItToUs.com, that takes issue with the card giants' "ad valorem" fees, in which retailers pay a percentage of the transaction value. Additionally, in the United States, the retailer pays an "interchange" fee to the bank.
