Ellen Roseman: Visa, MasterCard debit card plan will have considerable fallout
- October 21, 2009 9:06 AM |
- By Ellen Roseman
Money Talks is a daily business column from CBC radio.
Ellen Roseman is a business writer at the Toronto Star.
(Listen to the original audio of this column.)
As do many Canadians, I have an upgraded credit card, a snazzy black Infinite Visa. While I don’t pay extra charges to use it, the retailers pay more when they accept my card for a purchase.
This has happened in the last few years without much attention. The banks used a sneaky marketing tactic, called negative option, to send out the upgraded cards. Unless you said you didn’t want one within a short time period, you received one in the mail.
Consumer outcry was limited, but Canada’s retailers are fuming. They already pay about 1.5 per cent of the purchase price for basic credit cards - and now have to pay more to accept upgraded credit cards. They warn this will result in higher prices for customers.
But there’s another issue lurking behind the scenes that is making retailers alarmed. It has to do with debit cards, which are enormously popular as a payment system.
Interac, a nonprofit group of 64 financial institutions, dominates the Canadian market for processing debit card transactions. It charges a flat fee (about 6 cents a transaction), which keeps costs low for merchants.
Soon, however, Visa and MasterCard plan to introduce dual purpose cards that have both debit and credit functions. They would charge a percentage fee, as for credit cards, and would offer reward points as an incentive for consumers to adopt the new cards.
What would happen to Interac? Visa would allow consumers to choose whether their debit card transaction runs over Interac or its own network, while MasterCard would insist that a debit card transaction be routed over its own network.
What would consumers do if forced to choose at the point of sale? I imagine most would opt for reward points, while merchants would face higher fees to pay for those perks.
Here’s a point to remember. Interac’s nonprofit structure arose from a 1996 decision by the federal competition tribunal, aimed at ensuring the widest possible access to the debit network. It wanted to ensure that financial institutions had no incentive to restrict access.
Here’s what I’d say to the federal finance minister. What’s the hurry? I know you want to launch a set of credit card reforms by early next year.
First, let’s have a full discussion on the pros and cons of allowing Visa and MasterCard into the debit card field. Let’s ask them to hold off introducing dual-purpose cards until Canadians understand the tradeoffs involved.
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