The Harper government, trying to bring more fairness for retailers in the ever-more competitive credit and debit card market, laid out a voluntary code of conduct it hopes will reduce transaction costs for merchants trying to stay afloat.
But the initiative unveiled Thursday by Finance Minister Jim Flaherty fails to spell out precise penalties card companies would face if they don't toe the voluntary line.
He said Ottawa wants "to make sure that we are conscious of the costs that are borne by small businesses in Canada."
Mr. Flaherty noted Ottawa retains the power to regulate compliance, but the draft code released today doesn't spell out any kind of governing body.
The draft code - which Ottawa is putting out for consultation over 60 days - attempts to give merchants more control over how they process credit and debit card payments, including giving retailers the choice of which payment methods they want to favour. They would get the choice to give priority on their machines to debit or credit.
"The proposed code would encourage choice and competition in the credit and debit market for the benefit of consumers and merchants," Mr. Flaherty said as he released the code at Mrs. Tiggy Winkle's, a children's toy store in Ottawa.
Merchants have been increasingly complaining about the rising costs of processing credit card payments and the lack of flexibility they have to choose which types of transactions are given priority on retail machines used by consumers.
The proposed code is based on ongoing discussions with merchant and consumer associations across Canada. Once adopted, it would:
- Ensure merchants are aware of the costs associated with accepting plastic payment.
- Give merchants increased pricing flexibility to allow the lowest-cost payment options for consumers.
- Allow merchants to choose the payment options they'll accept.
The proposed code says that when a consumer uses a so-called co-badged debit card - one with both Interac and Visa or Interac and MasterCard on it, for example - the store will be allowed to decide which payment network the sale is routed over (for instance, Visa's or Interac's).
Merchants see that as a win because they can choose the cheapest network. Now, it costs them a flat fee in the neighbourhood of 7 cents each time a customer pays with a bank card and the transaction goes over the Interac network.
But Visa plans to charge a flat fee of 5 cents plus a percentage of the amount spent - for example, if a consumer uses Visa debit to pay for groceries or gas the retailer will pay 5 cents plus 0.15 per cent of the total bill - and merchants have been concerned that those charges will eat into their profits.
The code would require debit or credit card companies to give retailers 90 days notice of fee changes It would also give merchants the power to cancel their contracts with credit card issuers without penalty after they notify the transaction companies.
Mr. Flaherty said the government retains the power to enforce a mandatory code if voluntary rules can't be agreed upon.
Mr. Flaherty said Canadians don't entirely appreciate how much retailers are forced to pay to process credit and debit cards, and how these costs to merchants vary between different cards.
"I am not sure many Canadians understand that there is a cost [to merchants]to using these cards ... and it's largely merchants who bear the costs and not every credit card costs the same fee to merchants."
MasterCard said it would take part in discussions, but would review the proposed measures.
"Today's announcement and the code should resolve a commercial dispute for which the global retail lobby operating in Canada has government intervention over private negotiation," MasterCard Canada president Kevin Stanton said in a statement. "A code issued by the minister of finance must be taken seriously and establishes a de facto standard of conduct. In particular, MasterCard will review how the code of conduct ... could alter the competitive landscape and will take measures to safeguard its continued ability to deliver value and innovation to all stakeholders. Nevertheless, MasterCard believes that in formulating the proposed code the minister has undertaken a comprehensive and diligent review of a complex matter involving disparate claims."
Tim Wilson, head of Visa Canada, said the company was encouraged the code applies to all payment networks but that "we believe a choice of payments should be balanced between merchants and consumers and are disappointed that the code would allow merchants to supersede consumer choice at the point of sale. Merchants can and should decide whether they want to accept Visa Debit cards and merchants are free today to steer customers to the merchant's preferred choice of payment.But Visa believes that merchants should ultimately honour the consumer's choice."
Canadian Federation of Small Business president Catherine Swift applauded the proposed code but said she would also like to see a body that oversees market behaviour and enforce the voluntary code.
"We don't want to create a new bureaucracy ... there can be all kinds of possibilities."
Dave Wilkes of the Canadian Council of Grocery Distributors, which represents all the major grocers across Canada, also welcomed the code, which he said will fundamentally change the nature of competition in the country's payments industry.
Grocers have been dealing with spiralling costs to accept credit cards, and debit costs appeared headed in the same direction, he said, adding this has been a major headache for his members.
"Particularly within the grocery environment, where debit is over 50 per cent of the payment type used by customers, if the cost did become reality it would have had a significant impact," he said in an interview.
There are a number of ways that the code should help to keep costs down, he said. For instance, it gives merchants the ability to choose which payment network debit transactions are routed over, allowing them to choose the lowest cost option.
Mr. Wilkes cautioned that, at the moment, the code is simply a proposal and as such it's simply a starting point.
Consumers' Association of Canada president Bruce Cran also welcomed the proposed rules, adding he hopes whatever governing body polices them isn't dominated by financial institutions.