Canada has a highly competitive payments environment and additional competition is constantly emerging. Interac Association and Acxsys Corporation compete with other players in this dynamic and changing market. The traditional notions of the payments system, which revolve around payment networks, financial institutions and payment processors, are evolving. The range of non-traditional players involved in the payments system continues to expand, as do the array of business and technology models through which payment services are delivered to consumers, merchants, small and large businesses. In today’s marketplace, telecommunications companies, mobile handset manufacturers, social media outlets and a long list of technology start-ups are also vying for market share. In general, Canada is well positioned in the global payments arena. In fact, Canada has long been looked to from across the globe as home to a mature, modern, efficient and well functioning payments system.
As such, Canada is poised for progress on other technology fronts, such as mobile payments. Already well along with adoption of chip and PIN, and with the growing presence of contactless payments, key building blocks are already in place. In this setting, mobile payments will form a natural extension of this secure and proven infrastructure, to provide increased speed and convenience for users.
As the market continues to transform, however, it will be important to continue to encourage more effective and fair competition so that Canada’s payments system can deliver value, transparent choice and innovative product offerings for all stakeholders.
Since 1996, Interac Association has operated under an order issued by the Government of Canada’s Competition Tribunal (Consent Order). The primary purpose of the Consent Order was to open up access to the Interac network and the services existing at that time (Interac Cash and Interac Debit) to new members.
The Consent Order prescribes how Interac Association is structured, how it is governed and by whom, how it sets and collects fees, and even the voting levels required by the board to approve many initiatives. It requires Interac Association to operate on a not-for-profit basis. Essential business concepts, such as multi-year financial plans, retained earnings and organic capital pools, are not available to the Association. The result has been a significant constraint on our organization’s financial flexibility in responding to changing market dynamics.
While the Consent Order had a purpose in 1996 to expand debit market access and competition, that job is now complete. Today, Interac Association has a large and diverse group of members that span the payments landscape including banks, trust companies, credit unions, caisses populaires, merchants, and technology and payment related companies.
The Consent Order now imposes unnecessary constraints which create structural, governance and funding challenges for the business entities that together deliver the Interac services, particularly with respect to making timely and effective decisions and funding innovation. These challenges impact our organization’s ability to compete effectively in today’s highly competitive payments marketplace.
In response to these challenges, the Competition Tribunal in 2013 approved amendments to the Consent Order that permit a restructuring of the organization into a single entity - Interac Corp.- that will offer a single integrated portfolio of payment products under the direction of an independent board, and with the ability to better fund innovation. The amended Consent Agreement will remain in place until June 2018, subject to a successful restructuring of the organization.
Restructuring of the organization is currently underway. It is a critical step in helping the organization to continue offering the best payment products available and the value-add of remaining a low-cost payment option for Canadian merchants and consumers.
The federal financial services legislative framework acts as the means by which the federal government regulates and provides oversight to the payments system. Within this framework, the Canadian Payments Association (CPA) plays a key role. The CPA has a legislated duty to promote the efficiency, safety and soundness of its clearing and settlement systems and take into account the interests of users.
This is an important role, as the payments system represents a key component of national infrastructure, facilitating the transfer of value throughout the financial system and the broader economy. As the primary rule-setting body in the payments system, the CPA is a key vehicle for the administration of public policy in the space. Indeed, its rules are subject to broad public consultation and ultimately review by the Minister of Finance.
However, the CPA’s rules – and thus their public policy effect – does not apply to all payments system providers. Rather, only those entities that choose to clear and settle using the CPA’s facilities are covered. The Interac network is the only payment network in Canada that clears and settles transactions through the CPA. As the payments system has grown increasingly diverse, with the emergence of new payment types, technologies and players, the result is an increasingly uneven application of public policy and standards across the payments sector. The effect is to create competitive inequities between those participants that are subject to regulation and those that are not.
The Code of Conduct for the Credit and Debit Card Industry in Canada (Code of Conduct) was introduced by the federal Minister of Finance in April 2010. It contained ten provisions that direct the market conduct of payment card networks, and their issuers and acquirers and is intended to foster healthy competition by increasing transparency and by empowering payments system users – in this case, merchants and consumers – with the information needed to make effective decisions.
Enhancements to the Code of Conduct, particularly in the area of mobile payments, were released by the Finance Minister on April 13, 2015, to further promote fair and healthy competition, and reinforce the importance of choice and transparency for merchants and consumers.
The Code of Conduct is a pragmatic and flexible public policy tool that sets clear and effective principles for the payments industry to follow, while being technology agnostic and not pre-judging market outcomes. Interac Association and Acxsys Corporation endorse and adhere to the Code of Conduct.
For merchants, the Code of Conduct is designed to improve payment acceptance conditions in Canada. There are a number of key provisions around choice and transparency that merchants can use to their advantage to help lower acceptance costs:
• Merchants can not be forced to accept credit card companies’ debit products, often with higher acceptance costs, if they accept the credit offerings.
• Merchants have the ability to steer customers to lower costs options, like Interac Debit, through discounting.
• Merchants have control over contactless payment acceptance and can choose to turn off mobile acceptance if there is a price differential between types of mobile payments, and mobile and card-based contactless payments.
The Code of Conduct gives merchants in Canada powers nearly unheard of elsewhere around the world. We encourage merchants to be aware of the mechanisms in the Code of Conduct and to be fully informed about making payment acceptance decisions, as these decisions can have a significant impact on their bottom line.