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Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce

Issue 14 - Evidence - October 1, 2014

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OTTAWA, Wednesday, October 1, 2014

The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill S-202, An Act to amend the Payment Card Networks Act (credit card acceptance fees), met this day, at 4:15 p.m., to give consideration to the bill; and to study the use of digital currency.

Senator Irving Gerstein (Chair) in the chair.

[English]

The Chair: I call this meeting of the Standing Senate Committee on Banking, Trade and Commerce to order.

Today the committee meeting is divided into two parts. During the first hour we are continuing our study on the uses of digital currency, including the potential risk, threats and advantages of these electronic forms of exchange. And in the second hour, the committee will resume its study of Bill S-202, An Act to amend the Payment Card Networks Act (credit card acceptance fees).

In both sessions today we will be hearing from representatives of both Visa and MasterCard, although the individual witnesses will be different. Dealing with our first hour, let me give you a quick summary on our study of digital currency to date.

Commencing last spring, the committee received presentations from the Department of Finance, the Bank of Canada and the Canada Revenue Agency. We heard testimony from academics in the fields of economic and monetary history and cryptography, and from representatives from the Bitcoin Strategy Group, the bitcoin exchange CAVIRTEX, and BitAccess Inc., who are the makers of bitcoin ATMs.

Colleagues may also recall that on April 9, 2014, using the bitcoin ATM, which we brought into this committee room, I purchased 0.18 per cent of a bitcoin for $100 Canadian, and I regret to inform you that as of 12 p.m. today that 0.18 per cent is worth $76.89, if you can find a buyer.

The committee also heard from the Canadian Payments Association and from three companies directly involved in payment systems, namely Interac and PayPal, who deal with fiat currency, and BitPay, which is a payment system for bitcoin.

Today we will hear from the two largest credit card payments network operators in Canada, namely Visa and MasterCard. Representing Visa Canada, we welcome Mr. Derek Colfer, Head of Technology and Innovation; and from MasterCard, Ms. Sherri Haymond, Senior Vice President, Digital Channel Engagement, Emerging Payments; and Mr. Jason Davies, Head of Emerging Payments, Canada.

I understand Mr. Colfer has some opening remarks, to be followed by Ms. Haymond. Mr. Colfer, the floor is yours.

Derek Colfer, Head of Technology and Innovation, Visa Canada Corporation: Thank you very much, Senator Gerstein. I spent the last couple of years of high school in Ottawa growing up so I have fond memories of this town. It feels like I'm home. Thank you very much for having us.

Good afternoon, Senator Gerstein, members of the committee. Thank you for the opportunity to appear and to contribute to this study.

As this committee knows well, there is a great deal of interest and excitement around the future of the payments industry and today's topic of digital currencies. You have heard from many witnesses already, with most of them offering new information and insights. I hope I can also contribute to your deliberations in a meaningful way.

I know this committee continues to study issues in respect of payments, but allow me to give you a quick reminder and overview of our organization, Visa. Visa's brand is really quite well known, but the organization's core functions are sometimes less understood, and in some cases misunderstood.

Visa is a global payments technology company that connects consumers, businesses, financial institutions and governments in more than 200 countries and territories to fast, secure and reliable electronic payments. We operate one of the world's most advanced processing networks, known as VisaNet, which is capable of handling more than 56,000 transaction messages per second with fraud protection for consumers and assured payment for merchants.

On an average day, VisaNet sustains and successfully blocks over 300,000 cyberattacks. In fact, in the five minutes' time I am taking to make these comments, VisaNet has the potential to process over 14 million transactions in 175 local currencies and block over 1,000 cyberattacks.

Visa has been operating in Canada for more than 40 years. Within Canada, financial institutions have issued more than 32 million Visa cards, and the company serves more than 700,000 point-of-sale terminals across the country.

Visa facilitates Canadian commerce through the transfer of payments across our network securely and reliably every second of every day. As head of technology and innovation in Canada, I can assure you that we are deeply committed to preserving the trust that the Canadian consumers, merchants and financial institutions place in our products.

Trust is the cornerstone of an electronic payment system, and consumers have long trusted Visa's safety and efficiency. As a result of the industry's security investments, we've seen fraud rates in the Visa payment system decline by more than two thirds over the past two decades, and rates today remain low and stable. But when fraud does occur, Visa cardholders are protected through Visa's zero-liability policy, which protects cardholders from being held liable for unauthorized use of Visa cards. Virtual currencies do not offer these same protections for consumers.

Zero liability, guaranteed payment, security and the strength of our network are some of the reasons why consumers and merchants choose to use and accept Visa. These are also some of the issues that consumers, merchants and governments will need to consider when thinking about virtual currencies.

For example, transactions occurring over Visa generally take less than one second to verify, while transactions using popular virtual currencies can take several minutes. Point-of-sale merchants who accept virtual currencies for payment are accepting all of the risk, whereas merchants who accept Visa have an almost instantaneous notification of a customer's ability to pay.

These are just some of the important aspects of virtual currencies that we continue to follow closely. The ecosystem for our industry has grown substantially, and it includes not just merchants and financial institutions, but technology companies, mobile network operators, mobile device manufacturers and platform providers. Visa is a trusted payment network that provides global acceptance, superior network security and an exceptional customer service. For these reasons, Visa will continue to be a leader and to play a critical role in enabling commerce in the future.

I thank you again for the opportunity to testify today, and I would be happy to answer any questions you might have.

The Chair: Thank you, Mr. Colfer. Ms. Haymond?

Sherri Haymond, Senior Vice President, Digital Channel Engagement, Emerging Payments, MasterCard: Thank you for the opportunity to take part in this study. You have picked a broad and complex topic, so I will keep my remarks focused on four areas: the current payments landscape in Canada, global trends with payments, opportunities we see in this changing landscape and the risks posed by virtual currency.

First, a brief word about our role in the payments system. MasterCard is a technology company. Our technology and expertise power 1.9 billion cards accepted at 35.9 million merchant locations in more than 210 countries and territories. This gives people in every corner of the world the ability to conduct commerce safely and securely in a fraction of a second, something that is often taken for granted.

MasterCard runs the network that allows those card transactions to take place. Individual banks get MasterCard-branded cards into the hands of consumers and manage those customer relationships. Acquirers connect merchants to the network and enable them to take card payments.

Our goal is to offer all payment stakeholders, be they consumers, merchants or banks, the widest array of secure, technologically advanced products to meet their needs, which is a good place to begin the discussion about the current payments landscape.

First, I'd like to assure you that the plastic card in your wallet is not going to disappear any time soon. However, consumers want access to new payment technologies, all of which are part of a movement away from cash. The first evolution of this is contactless card payments, or tap-and-go features like MasterCard Contactless.

The next evolution will use this same technology but incorporate it into a mobile device, or what is now commonly referred to as mobile payments. These transactions can take advantage of the same security as chip and PIN transactions. There has been limited rollout thus far with mobile payments in Canada, but you should begin to see the technology being used more frequently this year.

With all these innovations, however, it is important to remember that consumers and merchants will continue to have choice. Mobile payments will not be forced on consumers or merchants.

There are some other innovations worth noting in this move away from cash, like replacing government cheques with more efficient mechanisms like direct deposit to prepaid cards, something Canada is pursuing.

To sum up, Canada is on the cusp of some fascinating payments developments that offer great opportunities for merchants, consumers and governments.

Next I'll turn to global trends with payments, and one clearly stands out: the move to a cashless society.

Cash is an inefficient and expensive payment instrument, yet it is still used for about 85 per cent of the world's transactions. We believe the value proposition of moving to a digitally based system is profound, and not just for traditional stakeholders like consumers and merchants, but also for governments. I've already mentioned the example of replacing government cheques. Another big issue is around the black market. Eliminate cash and you could potentially put a severe constraint on criminal activity, such as drug trafficking, money laundering and tax evasion.

There are some remarkable stories of countries that are primed to take a leap forward in payments as a result of technological advances. Take the Congo, for example, where the share of the population with a bank account is a fraction of a per cent, yet there are tens of millions of mobile phones. For many developing countries like this, a smartphone could become the entry point to the formal banking system, as well as a mechanism for the delivery of government benefits and even a means of providing identification for the population.

That is just a snapshot, but you can begin to see the potential.

Likewise, I will share a glimpse of the opportunities for merchants and consumers in this changing landscape. Consider some of our own work in the area of mobile payments. For example, our MasterPass service allows consumers to make purchases online with a single click, without having to enter their credit card information every time. This offers convenience for consumers and increased sales for merchants since we know a major concern is abandoned sales when consumers make their way through a more complicated online checkout process.

There are also infinite possibilities for merchants to offer couponing or loyalty programs tied to a mobile device.

Finally, let me turn to virtual currencies. We are concerned that bitcoin and other unregulated virtual currencies present very real risks of money laundering, criminal activity and consumer harm. Unlike payment card transactions funded by and settled in fiat currency, virtual currency transactions are today largely unregulated. This means no consumer protections, no disclosures, no error resolution, no dispute rights and no lost or stolen protection.

Also, the operators in the virtual currency world are not covered by many existing regulatory frameworks. If they become insolvent or abscond with a consumer's bitcoin, there is generally no government insurance scheme. Moreover, since the value of bitcoin fluctuates wildly, consumers and merchants that choose to transact in bitcoin gamble on whether they pay or receive fair value.

When you consider these factors, it is apparent that part of bitcoin's current appeal is the inability of many law enforcement agencies to trace its transactions, and this anonymity has made it a payment method of choice for illegal transactions, along with cash.

In a similar light, unregulated virtual currencies present a significant challenge for tax authorities, since they are like electronic cash, and even if the record of a transaction can be recovered, the identities of the parties and the ability to collect a tax may remain elusive. In fact, some of the benefits of moving to a cashless society that I described earlier, like cracking down on the black market, are actually undermined if virtual currencies remain unregulated.

In closing, MasterCard believes that there are great benefits of moving to a cashless society. However, it is important that the confidence in digital payments not be undermined by virtual currencies operating outside any legal or regulatory framework. We believe the bottom line for any payment method, including virtual currency, is that it must be safe, stable and reliable for consumers; it must provide an accepted value guarantee without exposure to significant fluctuation and risk; and it must offer all the basic protections that consumers have come to expect.

As you move forward with your study, I strongly encourage you to keep in mind the difference between digital transactions tied to a real currency and backed by a regulatory framework that provides consumer protection and addresses prudential risk, such as payment card transactions that operate on the MasterCard network, and digital transactions involving unregulated virtual currencies.

Thank you and I look forward to your questions.

The Chair: Thank you. Ms. Haymond, in your remarks you indicate — and I'm going to quote you directly, having had the benefit of your presentation — that ''cracking down on the black market [is] actually undermined if virtual currencies remain unregulated.'' Am I to understand from that that you picture that virtual currencies will continue to grow and that you are recommending regulation for them?

Ms. Haymond: We're not sure, frankly, whether they will continue to grow, but the trend is that they're continuing to grow. At the end of last year, there were fewer than a million holders of bitcoin. I don't have a source for this statistic, but I've heard colloquially that, today, more than 7 million people hold bitcoin. So in less than a year, it's grown quite substantially.

In the absence of regulation, it's going to continue to grow in an uncontrolled manner. Therefore, yes, we believe it should be regulated.

The Chair: Thank you. I'm going to go to my list of questions.

Senator Black: Thank you for those presentations. They were very helpful.

I would like to step back, if I may, and start, sir, with the very powerful end to your comment where you said you want to play a critical role in enabling commerce in the future. Do you believe that digital currencies have a role in commerce in the future?

Mr. Colfer: I do think, and I certainly think most of the folks around this table would agree, that there is a tremendous amount of buzz with regard to virtual currencies out there today. There are also a lot of unknowns, which is what we're trying to tackle and you are in the good work that you are doing with this committee.

It's too early to say how virtual currencies are going to evolve. Should they be regulated? I can say that we are certainly actively watching this space to see how it does evolve. We do want to be a part of the digitization of commerce, and we certainly are, but today the fact that there are so few consumer protections attached to virtual currencies is a concerning element for us.

Senator Black: If we were going to do something, you would say, ''Senate, note consumer protection,'' right? That's your recommendation?

Mr. Colfer: Consumer protection is a big issue.

Senator Black: What else? What are the other issues?

Mr. Colfer: I think virtual currencies certainly have the potential to move AML metres where they shouldn't be.

Senator Black: I don't know what that means.

Mr. Colfer: Anti-money laundering. There's really no way to track this stuff.

Senator Black: We're told clearly that there is a way to track this stuff. That's the evidence before this committee. We'll just leave it at that.

Mr. Colfer: Sure, to track virtual currencies.

Senator Black: We're told that there's a digital footprint that is actually very easy to track. So we're told.

Mr. Colfer: Okay.

Senator Black: Let's assume that for the sake of discussion. What else do we need to worry about?

Mr. Colfer: I think, Senator Black, the primary one in our mind right now is consumer protection.

Senator Black: Ms. Haymond, do you agree with that?

Ms. Haymond: We believe consumer protection is extremely important. Yes, we know it can be tracked. The issue is that it's tracked in kind of an anonymous way right now.

In the U.S., these entities that facilitate transactions in bitcoin have recently been brought under the money services business regime, and we believe that that's a good idea.

Senator Black: Okay.

Ms. Haymond: It imposes obligations to perform know-your-customer checks, and in the U.S., checking against our OFAC list and things like that we believe will really make the currency a lot safer. In addition to being trackable from a digital perspective, it will be trackable in a personal perspective.

Senator Black: Is there anything else you would suggest we should look at?

Ms. Haymond: Those are the main things that we think you should look at.

Senator Black: Thank you very much.

Senator Campbell: I have both MasterCard and Visa, so I'm neutral on this. Unlike many here, I remember when there weren't credit cards, or at least they wouldn't give me one. Now we've seen this transition where we've gone from essentially a total cash society into one where we now have established the credit card and that way of doing business.

I have to tell you right off the top, I'm amazed at your figures on cyberattacks. The numbers just absolutely stun me. I'm glad that you're able to do that, and I'm glad that all of you are continuing to do that.

If we're at 85 per cent cash now, where things are done in cash, and we do believe that in the future bitcoin and currencies like this are something that we will be dealing with in a realistic manner, do you think this is going to pull from the 85 per cent cash or is this going to pull from the 15 per cent that I assume is in MasterCard, Visa, American Express, and other cards? I would address that to you, Mr. Colfer.

Mr. Colfer: Sure. I just want to understand the question, Senator Campbell, if I could. Eighty-five per cent cash, and your question is, as the bitcoin usage potentially increases, will it pull from the 85 per cent cash or the 15 per cent other?

Senator Campbell: Yes.

Mr. Colfer: I think that will be completely demographic-dependent. I say it would be very difficult to give one number as a response. I think it would be completely based on the demographic that is using those payment tools.

Ms. Haymond: I actually agree. Bitcoin is popular amongst a bunch of different groups of people. We have criminals who are trying to evade the law, and those transactions will remain part of the cash transactions, I would guess.

There are investors who speculate and who buy, and then with the gains that they make on their investment, hedge fund types, they sometimes buy expensive things, as you've seen Richard Branson in the news, buying stuff with bitcoin. Then there are people in emerging markets who are using bitcoin because they don't trust their banking system. Those may replace some cash transactions, but this is all just my speculation.

Senator Campbell: The difficulty we have is that we're trying to look into the future in an area that is ground-breaking, quite frankly, from the point of view of consumers.

It has gone from, what did you say, 1 million to 7 million?

Ms. Haymond: Approximately, yes.

Senator Campbell: Approximately, and how long a period of time, anecdotally?

Ms. Haymond: A year. That increase was in about a year, but again, that's just anecdotal evidence.

Senator Campbell: Clearly, this has to be heavily on the radar of your companies.

Ms. Haymond: It is. We're watching it very closely.

Senator Campbell: I'm trying to get some idea or some grasp of where the tipping point is here. It's 7 million now, and if we say that every year it doubles, what's the tipping point when bitcoin really is whacking into the cash market and into your market? Is it going to depend on when it's regulated to the point where people trust it, or are the people going to take control of it as it goes along and try to run it themselves?

Mr. Colfer: I think one of the data points you could watch is the one that was shared by Ms. Haymond. The other one is what we would call cards in market. There are apparently 7 million bitcoin users globally, but where can you take those bitcoins to buy something? That's the other data point that I would certainly keep your eyes on. Acceptance is the critical data point to watch.

Senator Campbell: Do you see it waning?

Jason Davies, Head of Emerging Payments, Canada, MasterCard: I think it's too early to tell whether it's waxing or waning. I think Derek made an excellent point that one of the drivers of the growth of these digital currencies will be the acceptance of them. Where can consumers who hold these units of exchange actually be able to use them? If we see acceptance grow at locations where they can use these in their day-to-day lives, certainly we will see the speed pick up on that, and I would say that the majority of the attention should be shown on where these bitcoins can be used, where they can be accepted, and then certainly that will be a good measure of where it will go in the future.

Senator Campbell: Thank you very much.

Senator Ringuette: Of course, you know that the federal government has the constitutional responsibility to regulate currency.

Last summer I remember getting a Visa magazine, and on the cover was ''Visa, a digital currency.'' Both of you have indicated that virtual currencies should be regulated. Then I am assuming, rightly so, that the logic would be that Visa and MasterCard should also be regulated as a currency.

Mr. Colfer: I don't recall, and we can certainly look at the minutes, that I ever stated that virtual currencies should be regulated.

Senator Ringuette: Maybe Ms. Haymond?

Ms. Haymond: We believe that virtual currencies should be regulated, but we do not believe that MasterCard is in itself a currency. We allow people to transact safely and securely in fiat currency. That's what we do. We're definitely not a currency, and we've definitely never represented that we are a currency.

Senator Ringuette: This is interesting, this duality of point of view. Madam Haymond, you stated that cash is an inefficient and expensive instrument. From what evidence do you make that statement?

Ms. Haymond: We believe that it is. I don't —

Senator Ringuette: No, no. If you make a statement, it's because you have some evidence to corroborate your statement.

Ms. Haymond: We do. We have a tremendous amount of evidence that shows how expensive it is for governments and people to transact in cash. There's loss of money. There's the cost —

Senator Ringuette: Is it more expensive than using credit cards?

Ms. Haymond: Yes, it's more expensive than using credit cards or cheques. We could provide you with separate materials that show evidence of this, yes.

Senator Ringuette: I would love it if you could table that with the clerk.

Ms. Haymond: We'd be happy to provide that.

Senator Ringuette: Two years ago this committee received, from the Bank of Canada, a very extensive study that the Bank of Canada's experts did, and it showed that the least expensive payment method was cash.

Ms. Haymond: We have evidence to the contrary.

Senator Ringuette: I'm quite surprised at your finding. So you will table these documents?

Ms. Haymond: Yes.

Senator Ringuette: Thank you.

This committee, in a previous meeting on this study, received evidence from bitcoin users that, first of all, the entire virtual currency phenomenon was triggered by people who were absolutely tired of bank user fees and credit card fees. What is your response to that?

Ms. Haymond: We haven't heard anything of that sort. We've heard that people who didn't like government and didn't like regulation and didn't like to be known because they like to be anonymous sought to create an alternative currency that was not a fiat currency, where they could transact anonymously. That's as far as we understand it.

Mr. Colfer: From my perspective, I don't think I'd want to speculate as to the intentions behind why or how someone developed a virtual currency.

Senator Ringuette: We've had witnesses on this study, so, if you want to look at the committee records, you will see that this has been said to us. It's an issue. Trying to get too much out of people has some consequences some of the time, and some people have taken it into their hands and are being very creative and innovative and have gone into the virtual currency market. From my perspective, I see that, whether it's bitcoin or, eventually, another virtual currency, it's an innovative product, just like 40 years ago when Visa and MasterCard started the fantastic plastic. It was an innovative product. So you'll have to face competition. From my perspective, I'm kind of happy about that. Thank you.

Senator Tkachuk: My questions are a little more philosophical. We've had lots of testimony about virtual currency, and I still don't understand how it works. We've had fairly good experts in the field in front of us who know digital currency very well.

I understand cash because the government backs it. I understand credit cards because my bank backs it. My bank says, ''I'll give you credit of up to $30,000; that's it.'' Then, the credit card companies figure out how to move that credit around. So I can go to a store, and I can use that credit. Then, as long as I pay at the end of each month, I can continue using the card. So I've kind of gotten that.

But why do people accept a virtual currency, and how can you regulate something that's virtual? I still don't understand how the bitcoin is worth more money because some computer guy somewhere in the United States is producing these bitcoins that are being transacted but with no one backing them. In other words, there's no barter here; it's simply based on faith. I don't understand how it works. Maybe you can explain why people accept it.

Senator Massicotte: Others tried, and he didn't understand. You can try again if you want to.

Senator Tkachuk: Actually, witnesses, if they say they understand, they're not telling you the truth either. Go ahead.

Mr. Colfer: Is the larger question, how does it all come together and work?

Senator Tkachuk: Yes.

Mr. Colfer: These are very interesting times. Every morning there will be a headline that changes your perception of what happened yesterday and where the market was yesterday. For that reason, it's very difficult to speculate as to where it will be tomorrow or even how it works today. For those very reasons, we have challenges with regard to the consumer protections, which we think will be an issue, as I was mentioning to Senator Black.

To have a crystal ball as to how it will all pan out tomorrow with virtual currencies is very difficult. I know how they work conceptually, and I know the bitcoin example. However, there are about 13 other virtual currencies that consumers can engage with on any given day. So it's a tough one. It's a tough nut to crack. I know that didn't answer your question, Senator Tkachuk, but it's a tough one to answer.

Senator Tkachuk: Why don't you take a crack at it, Ms. Haymond?

Ms. Haymond: To your question about how you regulate something that's virtual, we believe that part of the problem here is that — the value question aside because I, frankly, can't answer the value question — basically there's a scarcity of these resources. They've created something that they can mine only a certain number of, and, as that number decreases, it becomes harder and harder and you have to give more computing power to get one of these bitcoins out. They trade on an exchange, more like a commodity. So that's the way I understand the value.

To your question on the regulation, we believe in consumer choice. With the fact that these are popping up everywhere, consumers may choose them. We believe that they will probably choose them; some consumers may choose to own and hold and use these. We believe that those consumers should be protected, and so should merchants. We think that if you take the anonymity out of the equation and treat these exchanges, the entities that conduct the translation of this stuff into fiat stuff, that will take a lot of the risk out of the system. Number one, it will help to make a lot of these currencies less attractive to the underbelly that's currently attracted to them.

To Senator Ringuette's point earlier, yes, there are fewer fees associated with these right now, but there are also fewer protections. If you regulate this — this is just my own personal opinion; I'm not speaking for MasterCard here — what I guess would happen is that there would be more fees associated with them, again, making it sort of a less attractive option to the underbelly, to the criminal element, and also to entities that are looking for a cheap, no-frills solution. I don't think there should be a cheap, no frills solution. I think there should be consumer protection, even if that comes at some cost.

Senator Massicotte: I was going to ask Senator Tkachuk whether he got a full answer, but I'll be polite. We can try again next witness if you want.

On the crypto-currency, you talk about there being no tracking and about regulation. Some countries are basically saying the point to focus on is with the miner, the dealers, if you wish. Obviously they can get the historical information if you require that. Would that be a solution to the regulatory? Is that good enough, or must we go to every person dealing with the crypto-currency?

Ms. Haymond: Are you talking about the people who actually mine it?

Senator Massicotte: The regulation, in other words, to avoid the whitewashing of money, to avoid the abuse, to avoid all this other stuff. Would that be good enough if you simply regulate the miner, the one producing the crypto-currency?

Ms. Haymond: I personally don't think so. I think the exchanges need to be regulated where that transfer of money is happening, the ones that look like they're performing a banking-like function. Also, I think it's unfair that they're not regulated as banks. They're performing a conversion from something that's not a fiat currency into a fiat currency. Just like any commodity exchange, a trading exchange, any sort of currency exchange is regulated, these too should be regulated.

Senator Massicotte: There are a lot of exchanges that are not heavily regulated, depending who the players are, obviously. Look at the institutional investors on the stock market. They have their own exchange, which is not regulated, because they're sophisticated investors.

Let me go to the other reason. They say currency has a good future because many countries do not have a very good banking system or they can use some form of transfer but it's very expensive in many parts of Africa. Is there value there? You often talk about the merits of your system. Can that be used in those poor countries? Do they have a banking system? Do they have a bank account? How do you avoid that issue?

Ms. Haymond: We actually think it could have value in those circumstances, but again, today, what we're encouraging is for there to be a regulatory framework amongst all governments around this, so that it's on an equal playing field with other similar types of currency.

Senator Massicotte: But I presume you're not simply attempting to make it so burdensome to increase the costs to become less competitive compared to your system?

Ms. Haymond: No, of course not. There are probably innovative ways to do that, but leaving it to its own devices we don't think is the right way.

Senator Massicotte: Can you offer solutions to those poor countries where people don't have bank accounts? Could they use Visa or MasterCard?

Ms. Haymond: Again, we don't have a currency, although we work on lots of innovative ideas every day. We have a research and development arm that works on things like that.

Mr. Colfer: There are innovative ways to provide fundamental banking services to the developing world. The democratization of payments has been a long-time focus of Visa's. Ms. Haymond was saying earlier about mobile devices being prolific in a lot of those countries.

We've done a lot of work in the developing world in the democratization of payments, where you've got a good chunk of the population that does not have fundamental banking capabilities, the ability to send money, the ability to save money, but a really good proportion of those folks do have a mobile device. That provides for a fantastic conduit for the democratization of payments.

We acquired a company in South Africa called Fundamo about three years ago that has done some fantastic work in the developing world with regard to using those mobile devices and allowing people to save money when they couldn't and send money when they couldn't. There are innovative ways beyond digital currencies and virtual currencies in which you can assist the developing world in what we refer to as the democratization of payments.

Senator Massicotte: Let's take a poor African country where the person does not have a bank account. How would they use the company you just bought in South Africa? How does that work for them to make the payments?

Mr. Colfer: It's a fundamental technology play called SMS, short message service. Another name for it is text messaging. It used to be that if I was within one of those developing nations and I wanted to send 10 local currency units across town to my cousin, I would hand 11 local currency units to a cab driver or a bus driver and they would take one and deliver 10. Now what you can do through SMS or text messaging is literally send a text message to the recipient with the number attached and how much you would like to send, which is then tethered to a bank account. You're sending money digitally and allowing for capabilities, features and functions that didn't exist before.

Senator Massicotte: If there's no bank account, can it work?

Mr. Colfer: A lot of them are tied to mobile network operator accounts, so they can actually exist without what we would refer to as a standard bank account.

[Translation]

Senator Bellemare: I have a question concerning your attitude to this digital currency which, in practice, appears to be closer to a method of payment, according to all the analyses from the witnesses we heard. It is not an account unit as such, but rather a payment method. It is in fact similar to a commodity. The bitcoins are not like a credit card. One gets the sense that you have a lot of concern about the future of bitcoins and the way they will evolve in relation to your own strategy. The bitcoins do not offer credit, but you offer credit. You have credit cards. In a certain way, there is a whole development strategy in connection to your users.

We were told that the technology behind the bitcoin was sensational and allowed for a reduction in the costs of transactions, international transactions particularly. The new generation may let itself be tempted by this type of product. On the other hand, it does eat into the financial transactions market.

Why do you not invest in the digital currency business? You could offer complementary services.

You perceive digital currency as being opposed to your business model. However, is it possible that someday you will decide to use this technology to develop other, simpler methods of payment, in particular for international transactions? Did you think about that? That is the gist of my question.

[English]

Ms. Haymond: At MasterCard, we look at lots of different companies every day. The reason I have the knowledge I have is that we've been out there talking to a lot of these companies. Obviously, we've not invested in any of them and we're not currently considering investing in any of them. Again, I don't think we would make a move like that unless and until the currency or the protocol or whatever you want to call it is regulated. If there are consumer protections and it's not anonymous and there's KYC and we're able to track the transactions, we do believe that there are a lot of innovative aspects to this. We like that it's low cost. We like that it's fast. Frankly, we like that it's innovative and, as you mentioned, different from our business. But I don't think we would even consider taking a step like that unless it was recognized by government.

[Translation]

Senator Bellemare: Certain representatives of the bitcoin enterprise told us that some of them at least would like to see legislation, a regulatory framework such as the one for foreign currency.

If that came to pass, would you invest in this area?

[English]

Ms. Haymond: I'm obviously not the chief financial officer or the corporate development person. However, we look at virtually everything. If the conditions were right, I wouldn't actually say there was anything we wouldn't consider investing in if from a policy perspective it made sense for us.

Mr. Colfer: From our perspective, we actively invest in innovative companies like Fundamo, but I think there are some elements that you need to have before you actively pursue those considerations and things like scale, security and efficiencies. Those are things that we would really want to focus on. Those are three specific areas, and also consumer protection, which are areas in virtual currencies where you can't check those boxes right now.

The Chair: Senator Tkachuk would like a clarification.

Senator Tkachuk: In response to Senator Bellemare's question on the currency itself and your investment, you said ''unless it was recognized by government.'' By ''recognized,'' do you mean backed by government? What do you mean by ''recognized by government''?

Ms. Haymond: I didn't mean ''backed by government.'' I don't think it would ever be backed by government, but there could be a framework around it where governments would acknowledge it in an official kind of way, and again, take away some of what we think are the key risks present in it.

The Chair: Senator Tannas will ask his first question as a new member of the Banking Committee, which we welcome.

Senator Tannas: Thank you, chair. To follow up a little bit on Senator Bellemare, but maybe a bit more bluntly, because you're experts and we're here to listen to experts, is this a fad? Is this what I like to call a dumb idea whose time has come? In your opinion, will this go the way of the Dutch tulip bulb craze of 18-something-or-other and we'll all be looking at this sometime in the future?

I appreciate that this will not be the official Visa opinion or MasterCard opinion, but you're experts in your own rights, and I would be interested to know what you think.

Second, assuming that it isn't a fad, how difficult would it be for your organizations to replicate exactly what is being done by, say, bitcoin? Is there any kind of secret sauce that they have that you couldn't replicate quickly and, therefore, if you decided to get in on it, buy it versus just build it, using your own infrastructure, your own regulatory systems and so on?

Mr. Colfer: On the fad, consumers and merchants want scale, security and efficiencies. Those are our core focuses at Visa. This will not answer your question, but I would not want to speculate as to whether this virtual currency — bitcoin or any of the virtual currencies out there — is a fad or not. Time will tell. These are early days.

With regards to replicating technologies, protocols and standards that seem to be put in place by those virtual currencies, that in itself would require a whiteboard and many engineers, and we don't have either. Maybe we have some engineers, but I don't see a whiteboard. My point is that it's a great question, but I wouldn't want to speculate on that one either, senator.

Senator Tannas: Are you going to be braver?

Ms. Haymond: I'm not going to speculate, but I'll give you some facts.

We also think that payments should be safe, simple and smart. I am not sure whether this is a fad. I know that a lot of people are interested in this, there's a lot of buzz, and I think it's something that we all need to pay some attention to, as you all are doing here now.

We are extremely active in our innovation. We have patents in this area — that's public and on the record. We have United States patents in digital currencies, not because we plan to exploit them now and introduce a MasterCard digital currency or anything like that, but for the sake of innovation. I don't know exactly if the patents that we have in the area would replicate bitcoin, but if we wanted to do things in digital currency, yes, we have patents in that area.

The Chair: After an excellent question like that, you're certainly entitled to a follow-up, if you wish.

Senator Tannas: I'll rest. Thank you.

Senator Greene: I have kind of a follow-up, actually. Given that most of your testimony here has been about creating a regulatory framework to enable bitcoin to be more secure and to happen, and also given your patents, can we assume that you think bitcoin or virtual currency is a continuing and permanent part of the currency landscape?

Ms. Haymond: We believe it's an important innovation and that different forms of it will probably continue to evolve. Again, it's not that I don't want to speculate, but it's just speculation on my part as to what's going to happen.

Senator Greene: Sure.

Ms. Haymond: Again, people are very intrigued by this idea. There are good aspects of it: It's low cost, it's quick and it is traceable if you track it the right way.

So, yes, I personally think that things like this are going to continue to pop up.

Senator Greene: Sure. That's good. I think that's what we believe, too.

Again, this is all in the realm of speculation, but you know when you go to a restaurant and a server brings you a mobile device and you put your card in — American Express, Visa, MasterCard, a debit card or whatever you want — assuming that bitcoin or a virtual currency achieves the protections that enable it to be accepted, can you imagine a time when bitcoin will also be an option to pay on the same device that you use for your cards?

Ms. Haymond: I can imagine a lot of different ways that could actually happen. If it's regulated, perhaps we would decide to have it run over the MasterCard rails. Then there would be the great standards and protections that MasterCard provides. It could become a separate network.

I feel like there are a lot of different ways that it could go, but a lot of that depends on the actions of governments like Canada and the United States. China has bowed out for now. It all depends on the way it grows up and what happens. But, yes, people could pay with it.

Personally, do I think it will be a primary way for people to pay? Probably not. I think it will have specific use cases. I think it's particularly useful for P2P. It's particularly useful for business payments. There are things where it makes sense — this is just my own personal opinion; I'm not speaking for MasterCard — but I think there are use cases where it makes more sense.

Senator Greene: Yes.

Ms. Haymond: That's all. I don't really think that regular people any time soon would be paying for their dinner at the table in bitcoin.

Senator Greene: Our chairman is not a regular person.

Senator Ringuette: Could we qualify that?

Senator Greene: A quick last question. You mentioned China. Why have they decided to bow out?

Ms. Haymond: I don't know. I just know that they have said that their banks cannot transact in it.

Senator Greene: Okay, good. Thank you.

The Chair: To our panel, on behalf of every member of the committee, I'd like to express our great appreciation. You have been very helpful in our ongoing study.

Before we move forward, I do want to advise the committee that I have received a written declaration from one of our members, to which I have responded as follows, and would like to have recorded in the minutes, please.

Senator Tannas has made a written declaration of private interest regarding Bill S-202, An Act to amend the Payment Card Networks Act (credit card acceptance fees), and in accordance with rule 15-7, the declaration shall be recorded in the minutes of the proceedings of the committee, and he shall absent himself from discussion on this bill.

Thank you.

Today, in our second hour, the committee is holding its third meeting on Bill S-202, An Act to amend the Payment Card Networks Act (credit card acceptance fees), which was introduced by our colleague Senator Ringuette.

Senators will recall that the committee began its study on May 29, 2014, by hearing from Senator Ringuette, the Department of Finance, the Financial Consumer Agency of Canada and the Competition Bureau of Canada.

At the second meeting, on June 19, we heard from the Canadian Federation of Independent Business, the Retail Council of Canada, the Ontario Federation of Anglers and Hunters, the Saskatchewan Wildlife Federation, and the B.C. Wildlife Federation.

Today we will hear from the two payment card networks designated in the legislation, namely, Visa and MasterCard.

Representing Visa in this second hour is Mr. Robert Livingston, President; and Mr. Brian Weiner, Vice President, Product and Strategy. From MasterCard, we have Mr. Don Lebeuf, Head of Customer Delivery, Canada.

I will now turn the floor over to Mr. Livingston, to be followed by Mr. Lebeuf.

Robert Livingston, President, Visa Canada Corporation: Thank you very much, Senator Gerstein, and good afternoon, everyone. My name is Rob Livingston and I'm the president of Visa Canada. With me is Brian Weiner, who leads our product and strategy function and had led our interchange function since 2006.

Thank you very much for the opportunity to be here today.

I would like to use this time to speak to three things: the payments industry in Canada today, how interchange works, and the impact Bill S-202 would have on consumers.

Canada's payment industry is characterized by more choice and innovation today than ever before. The range of non-traditional players continues to expand. Telecommunications companies, mobile handset manufacturers, social media outlets and technology start-ups are all entering the payments industry here. Global competitors, such as American Express, PayPal and China UnionPay continue to grow, and don't forget Canada's Interac, which has almost a third of the Canadian payments market. Together they offer a growing number of options for consumers and merchants. These are the hallmarks of a healthy, competitive and innovative environment.

Equally important, initiatives such as the Code of Conduct for the Credit and Debit Card Industry in Canada have amplified the voice of all stakeholders in setting the ground rules for our industry. This fact is relevant to our discussion as we believe this and other government initiatives have superseded this effort to regulate payments.

As you know, the code of conduct governs many aspects of the relationships among parties to the payments system and is currently under revision by the Department of Finance to improve and expand its scope further. While Visa believes that our system has served Canada extremely well, we understand the need to balance the interests of the expanding number of parties with a stake in how that system works. With that in mind, we are currently working with government, merchants and all stakeholders to develop and refine this voluntary mechanism to address existing and emerging areas of concern.

We believe the code has worked well. We committed to it in 2010, and we remain committed to it today.

I would now like to make a few comments about interchange, an economic mechanism that is both fundamental to the payments industry and often misunderstood.

Visa's interest in setting interchange rates is to maintain the balance in the system. If interchange rates are set too high, merchants will stop accepting cards. If interchange rates are set too low, issuers will go uncompensated for the value they deliver to consumers and merchants, and the features that attract consumers and encourage them to spend will be diminished. Interchange is not the price that the merchant actually pays to accept electronic payments. Merchants pay what is called a merchant discount rate. That rate is negotiated with their acquiring bank or payment processor and will include other costs beyond interchange. Importantly, interchange is not a Visa revenue stream.

Let me now touch briefly on the potential consumer impacts of Bill S-202.

The kind of regulation contained in this bill has been tested in Australia and elsewhere. The results, we believe, were harmful and had unintended consequences for all parties. In Australia, where caps on interchange were imposed with the intention that the price of goods would go down, consumers have not seen the savings. In fact, the Reserve Bank of Australia itself has recognized that regulation has led to increased costs for consumers with no corresponding reduction in retail prices.

The RBA concluded that ''lower interchange fees in the MasterCard and Visa credit card systems have resulted in a reduction in the value of reward points and higher annual fees, increasing the effective price of credit card transactions facing many consumers.'' And that ''no concrete evidence has been presented . . . regarding the pass-through of savings'' from merchants to consumers.

I would also like to address the studies that were tabled recently by Senator Ringuette.

The paper prepared by David Shapiro is notably silent on the question of the overall effect on consumers. It's narrowly focused on interchange. It does not analyze consumers' increased costs or reduced benefits, which is the only way to determine the net consequences of that legislation to consumers.

The senator also submitted a paper by David Evans which examines the effect of U.S. debit regulation on consumers. Evans does address both consumer savings and consumer costs, and he concludes that consumers experienced a $22-billion net loss from regulation broadly defined. This demonstrates that regulation leaves consumers worse off in real terms.

I believe my time is about to end, so to quickly sum up, Canada's payment industry is working as a vibrantly competitive market should, with new players and technologies all seeking consumer and retailer preference. Differences among its stakeholders have been worked through or are being worked through via the code of conduct. There is no evidence, economic or otherwise, to establish that regulation is necessary. Regulation, we believe, will only harm consumers to the benefit of retailers, and none of the evidence we have seen would show otherwise.

Finally, I just want to reiterate that Visa has and will continue to work with government to address merchant concerns through measures that adequately consider the effects and consequences for all stakeholders in the payments system.

Thank you again for the opportunity to speak here today, and we welcome any questions.

The Chair: Thank you very much. Mr. Lebeuf?

Don Lebeuf, Head of Customer Delivery, Canada, MasterCard: Thank you for the opportunity to discuss Bill S-202, which seeks government intervention in the market to make pricing decisions on issues involving multiple private sector stakeholders. We believe this is a mistake and runs counter to past government positions on financial sector regulation that have focused on ensuring competition, choice and transparency. I want to focus for a moment on those traditional values before getting to the unintended consequences of price regulation.

Let me start with choice. It is important to remember that every merchant makes a choice to accept credit cards based on a cost-benefit analysis. Many do so because there are clear benefits, like increased sales, guaranteed payment, reduced cash handling costs and online sales, to name a few. The fact that so many merchants accept credit cards is because of the value they represent. The second key variable is competition. When a merchant decides to accept credit cards, at least eight acquirers, or merchant processors, will compete for their business, largely based on price. There are also new entrants competing for merchant business outside of the traditional channels, like PayPal and Square.

At a broader level, MasterCard is constantly evaluating our cost structure to determine how to improve the value proposition to more effectively compete with debit, cash and cheques. As a case in point, we reduced fees for low-value transactions, an important issue for low-ticket, high-volume businesses like fast food. Our tap-and-go payment option for such environments is much more efficient than cash and often cheaper than debit, and that shows the market at work.

The third key variable is transparency, which has been greatly improved with the government's code of conduct. Merchants can now clearly understand their card acceptance costs through detailed monthly statements from their processors, thereby helping them to better evaluate the value proposition offered.

We believe there is a competitive market for payments built around choice, competition and transparency, and the major risk of Bill S-202 is that it will eliminate competition, replace sophisticated price decision making with arbitrary government dictates, and lead to negative consequences for consumers and merchants.

This is not to suggest that the payments system is perfect. MasterCard has heard the concerns about costs from merchants and government, and the last budget committed to address this. To that end, we are working with the government to reduce merchant costs, while also protecting the interests of consumers. I cannot share further details at this time, but there are two broad aspects of the current discussions that I can highlight.

First, the proposed solution is an industry initiative, not government intervention. We still believe in a market solution to this debate.

Second, our focus will always be on balancing the interests of merchants and consumers. We are no further ahead if merchant interests are addressed but consumers are harmed. Therein lies the link back to Bill S-202. Let's look at Australia since it's so often cited by proponents of price regulation despite the well-documented negative impact on consumers and the payments system.

First, when the Reserve Bank of Australia regulated fees, it expected but did not mandate that savings would be passed on to consumers. However, there is still no evidence that that happened. We are pleased that the Canadian government has called on merchants to pass on savings to consumers, but international experience, in Australia, the U.K. and many countries, has proven that that will not happen.

The other reality in Australia was that price controls led to reduced revenue for card issuers, forcing reductions in card benefits and reduced availability of credit. Cardholder fees increased between 22 per cent and 77 per cent, costing consumers about $480 million annually.

Finally, Amex, the most expensive acceptance option for merchants, was left out of the regulation, as it is in Bill S-202. That allowed Amex to increase its consumer benefit programs, while MasterCard and Visa were forced to cut theirs. As a result, more consumers switched to Amex, which ultimately increased the acceptance costs, the exact opposite outcome from the one that price regulation sought to achieve.

A more recent example comes from the U.S, where Congress regulated debit card fees in 2010. The consumers paid, on average, 1.5 per cent more for goods after the 50 per cent cut in fees was implemented. Merchants, on the other hand, pocketed $8 billion in savings, while consumers faced new or higher fees for traditional banking services to offset the lost revenue.

These examples show what will play out in Canada if government is given the power to set prices in the private sector.

The most dangerous element of Bill S-202 is that it seeks government intervention in a complex market to favour merchant interests above all other stakeholders. The others — and consumers most importantly — will feel the negative impacts. In contrast, when MasterCard sets prices, we have to consider the impact on all stakeholders, including merchants and consumers.

Longer term, we continue to review our structures and improve the merchant value proposition for card acceptance. As part of that, we have already reduced fees in several years and are engaged with merchants to address their concerns and offer new innovations to improve their business.

That is all the result of the market working rather than government regulation. Where tried, government price controls have failed. Therefore, we urge senators to vote against this bill and to continue Canada's pro-market approach to the financial sector.

Thank you, and I look forward to your questions.

The Chair: Thank you very much for your presentations.

Before I go to my list of senators with questions, I would like to tell you what's running through my mind. I think I've got it right.

In 2010, a Code of Conduct for the Credit and Debit Card Industry in Canada was introduced by the government to promote merchant choice, transparency and fairness in the credit market, and the government was confident that industry would adopt the code voluntarily, which it has done.

But the Minister of Finance at the time said, ''We have the legal authority to regulate the industry if necessary.'' As of yet, that has not been required.

Next, in 2013 the Competition Tribunal found that some of Visa's and MasterCard's network rules had adverse effects on competition, resulting in higher costs to merchants.

Then, in Budget 2014, tabled this past April, the government reiterated the need to lower credit card acceptance costs, and I quote directly from Economic Action Plan 2014: ''Canada has among the highest credit card acceptance costs in the world.''

From 2010 to 2014, it's been four years, and we've really seen no significant changes from industry, aside from lowering interchange rates on transactions under $10 and lowering commercial interchange rates.

Let me be clear: Canadian merchants and consumers are expecting movement.

Mr. Lebeuf, in your presentation, you told the committee that you were working with government to reduce merchant costs, while also protecting the interests of consumers. You have talked about working with the government to reduce costs, and you have talked about how the solution is an industry initiative and not the place for government to intervene. To be frank, you've talked the talk, but I suspect that what the committee wants to know is when you will walk the walk. With that, I refer to my list of senators with questions, starting with Senator Black, to be followed by Senator Greene.

Senator Black: Thank you all for being here, and thank you for the contributions that you've clearly made.

I must say, though, that I am skeptical about what I have read in the presentations you have today. I understand we all have vested interests. I understand we all need to advance them, but, in line with the chair's comments, we're here to try and effect some kind of resolution that benefits Canadians. I did not have the advantage of reviewing the Visa presentation in advance, but I did have the opportunity to review your comments, Mr. Lebeuf. I would like to refer to them, if I may, and perhaps you can assist me.

If you could turn to page 2, paragraph 2, where you indicate that ''We believe there is a competitive market for payments built around choice, competition and transparency . . .''

Let's talk about choice and competition. The information that I and, I believe, other members of this committee have been provided is that 90 per cent of the Canadian credit card market is controlled by Visa and MasterCard, both of which have increased acceptance fees by 30 per cent over the last year. Can you discuss with us, please, how that amounts to choice and competition, in your mind?

Mr. Lebeuf: First, I would like to address the assertion that our fees have gone up 30 per cent in a single year. We haven't changed our pricing on interchange since April of 2009.

Senator Black: Thank you.

Mr. Lebeuf: They have been stable, with the exception of the interchange rates that we have reduced. So that is incorrect and misleading.

Senator Black: Thank you for pointing that out.

Mr. Lebeuf: There's a lot of choice.

Senator Black: Do you control 90 per cent of the market?

Mr. Lebeuf: Ninety per cent of the credit card market. You have to factor in debit. You have to add cash to that because cash is a legitimate competitor, if you will. We are looking to displace cash. Then there are cheques, although they are used less by private folks as opposed to the government and businesses.

So we compete with a lot of different entities, and now you've seen that PayPal is operating. You've got Square operating in Canada now. Bitcoin is a small side thing. There are a number of choices that consumers and merchants have in whether they're going to use or accept certain payment types.

Senator Black: Your evidence is there are other players, but certainly you wouldn't suggest to this committee that they are real competitors to Visa and MasterCard?

Mr. Lebeuf: I would suggest Interac is a definite competitor, especially given the way Interac is constructed regulatory-wise. They are set to recover in a cost-recovery model, where their fees are artificially held low by the competition of consent agreement. Absolutely, Interac is a definite competitor, and so is cash.

Senator Black: You stand by your suggestion that there is real choice in competition?

Mr. Lebeuf: Absolutely. We battle it out every day.

Mr. Livingston: If I can pipe in on the assertion around the 30 per cent price increase, Visa, going back six or seven years, even before Visa became a public company, our weighted-average interchange rate across the entire system was 1.59 per cent, and today it's 1.65 per cent. That's an increase of 4 per cent over six years. I'm not sure where that 30 per cent number comes from.

Senator Black: I'm not either, but I'll find that out. Thanks for pointing that out.

Sir, if we can come back to the competitor market and your point about transparency. I understood that transparency really only exists because of the government's code of conduct that you have signed onto and that the transparency was forced upon you.

Mr. Lebeuf: We adopted the code of conduct voluntarily. We've embedded it in our rules because it was the right thing to do. Certainly the government has the ability to regulate under the Canadian Payments Act, but it made perfect sense. We've always felt merchants should know more about their payment options and their costs and, when they're making a decision, should understand what those costs entail, whether it's a terminal price, the transaction fees or their merchant discount rates.

The code of conduct brought into line all of the acquiring processors that actually service the merchant community. It assured that there was a consistent and transparent divulging of information to merchants so they could clearly understand exactly their acceptance. It has given them more information than ever before, and I think that's a good thing.

Senator Black: Of course it's a good thing, but that was because the Government of Canada encouraged your industry to do it.

Mr. Lebeuf: To some degree I'd agree with that.

Brian Weiner, Vice President, Product and Strategy, Visa Canada Corporation: I can't speak for MasterCard, but with respect to Visa, that statement does not hold true. Visa voluntarily put forward a publication of our interchange rates in advance of the code of conduct. In fact we were proponents of that in the code of conduct, which was collaboration among the entire industry.

Senator Black: That's good to know. Thank you.

Mr. Lebeuf: As an industry, we've tried to communicate to merchants the value of payments. We put that on our websites. However, we're prohibited against price maintenance. We can't influence what happens between the acquirer and the merchant. The code of conduct was a good thing in that it prescribed exactly what needed to be told to merchants, which is something we cannot do under our rules. We're prohibited through price maintenance regulation.

Senator Black: Sticking with the statement in paragraph 2, you talk about the risks of Bill S-202. You're quite clear on this. You believe it will eliminate competition. How could that possibly be the case?

Mr. Lebeuf: It favours American Express, to be blunt. It's been proven in other countries that when you leave a competitor out of the equation, they're free to increase their product benefits to consumers and attract those consumers. Those cards carry a higher cost than our cards. The major risk that we're concerned about is that this does not balance the consumer equation.

When we look at interchange, we're very thoughtful about it because, as was pointed out earlier, if our interchange rates are too high merchants will not accept it. If they're too low then we can't provide benefits for consumers to use a credit card — fewer consumers, less benefit to the merchant. It's a very delicate equilibrium that you have to keep in mind. If we go too high, merchants will not accept; and I think American Express has seen that. It's a delicate balance, and it's not in our self-interest to raise interchange rates and have them skyrocket. It just doesn't serve our purposes.

Senator Black: We will talk about that in a second, but would you agree with me that your statement that it would eliminate competition is a little extreme?

Mr. Lebeuf: It would reduce our competition. It would hamstring MasterCard and, I would assume, Visa.

Senator Black: Let's just talk about merchants and consumers. You talk about the negative consequences for merchants. Isn't that only that they'd be paying lower fees to you?

Mr. Lebeuf: Sorry, would you repeat?

Senator Black: If Bill S-202 became the law and merchants paid reduced fees to you, what are the negative consequences for the merchants?

Mr. Lebeuf: Specifically, there are more negative consequences for consumers. Let's be absolutely clear.

Senator Black: I want to talk about merchants first.

Mr. Lebeuf: Right. Again, back to the negative consequences for merchants, as borne out in Australia, you're enabling a competitor that already has the highest price of acceptance in the marketplace to grow their consumer base and, in fact, raise the acceptance costs for those retailers by simply squeezing the balloon and moving those cardholders to a higher-priced option for these merchants.

Senator Black: Appropriately, your concern is for your firm, not so much for the merchants.

Mr. Lebeuf: We are always concerned about the merchant, but I'm concerned for my firm, I'm concerned for the merchants and the consumers. It is a balance, and consumers have to be brought into this.

Senator Black: It's also been pointed out, and perhaps it's incorrect, that in Europe they've had caps on credit card acceptance fees for a long period of time, and, indeed, on July 24, 2013, a regulation was passed binding 28 countries in Europe to limit merchant fees to 0.2 per cent for debit cards and 0.3 per cent for credit cards.

Do you agree that Canada is now the global outlier?

Mr. Lebeuf: No. In fact I would say Canada is a show of how the industry can work together with government to come to a resolution.

Senator Black: We have no resolution.

Mr. Lebeuf: As he mentioned in the budget and in other recent statements, the Minister of Finance has made it very clear that this is a matter of months, not years. The timing of this committee may be a little premature, but there are significant efforts under way working with the government to resolve this issue.

The Chair: Mr. Lebeuf, our timing is not premature. We have a bill before us that we are studying.

Mr. Lebeuf: Yes, I understand that. That was a poor choice of words. Sorry.

Senator Black: We would urge you to act with dispatch. Thanks very much.

Senator Greene: First, I'd like to let you know that I'm a Conservative and, more than that, I'm an Eastern Conservative as opposed to a Western Conservative. Western Conservatives tend to mistrust banks and large financial institutions. Eastern Conservatives tend to love them. If I don't love them, I certainly respect them.

We've had a lot of testimony from all kinds of merchant associations and groups. One of the issues that have grabbed my attention is the issue of choice. You've indicated that merchants don't have to have credit cards; they can use cash. Well, in this day and age, if you want to sell somebody something, you have to offer more than cash; you have to offer credit cards or at least a debit card. To say that that's a choice they have, to me it's not really a choice.

You say they have choice amongst cards but, as I'm sure you know, merchants are asked to take all the cards and feel pressured to take all the cards because it's a matter of competition for them. If a merchant's competitor takes all the cards, then he has to take all the cards. I wonder if you could address that point.

Also, please answer another question: Because a merchant pays the system different rates for different cards depending on the reward points associated with the cards, are individuals who choose to have a lower-priced card — or maybe they're not eligible for a card with a lot of reward points — actually subsidizing the network on behalf of those who have bigger cards?

Mr. Lebeuf: First of all, a great number of merchants accept credit cards because they've made that choice to do so. ''No one is holding a gun to their head,'' to quote a senator from 2010 when I was here last time. According to Statistics Canada, there are 2.4 million businesses in Canada, and roughly a million of them accept MasterCard, so clearly some businesses made a cost-benefit analysis that credit cards don't fit their business model. Others choose to accept them because that's what their consumers would like to pay with. That's the free market at work.

What was the second point of your question?

Senator Greene: The cross-subsidization.

Mr. Lebeuf: MasterCard rules have always allowed merchants to discount for cash or other forms of payment if they chose to do so — or steered them to lower forms of payment — but when you're talking about an average transaction size, the difference between a core card and premium card is, for an average transaction — we're talking about pennies.

The following really opens up a Pandora's box for the merchant community, frankly: If a consumer doesn't use one portion of the services, should they get a discount? Let's say they go to a hotel and don't use the free wi-fi, should they be entitled to a discount on the core price that everybody pays? It goes on and on.

It's not something that's feasible within the community to parse out the idea that ''you didn't step on my carpet, so I don't need my carpet cleaned, therefore I won't pass the carpet-cleaning costs on to you,'' or ''you used the automated checkout, so you didn't use my staff, so you deserve a break on the price.''

It really is an issue at the merchant level — how would you change the pricing based on how much of the services they're using?

Mr. Livingston: In addition to the 1.4 million merchants that Mr. Lebeuf mentioned that do not accept MasterCard or Visa, there are some very large merchants in Canada that have chosen not to accept one of those two brands. Costco and No Frills do not accept Visa; they only accept MasterCard. That's clearly an economic decision they are making based on competition between brands.

On the second point, I would also raise the concept that the offering of credit to consumers isn't just about interchange. There are many other factors to it, particularly around carrying debt, interest rates, et cetera. Cross-subsidization is a complex matter that isn't simply univariate; it's not just one variable being brought into account.

Senator Ringuette: — charged interest and credit card membership fees. You're mixing apples and oranges.

Senator Greene: When somebody purchases a service or an object online with a credit card, how do the fees work?

Mr. Livingston: It works very much in the same way as a face-to-face transaction would work, where the online merchant would pay a merchant discount rate to their acquiring bank or their payment processor. Then that acquiring bank or payment processor would forward the interchange onto the issuing bank that actually gave the credit card to the consumer.

Senator Tkachuk: I'm just going to ask a few questions, because we're supposed to be trying to educate the public here, as well.

On, say, a $1,000 or $500 transaction at a retail store and I give them my Visa card, what would the percentage of costs be to the retailer, on the average? You don't have to be specific, but on the average, what percentage would the retailer have to pay?

Mr. Livingston: I can speak to a rough average; there's a wide variety based on individual arrangements. It will be somewhere between $20 to $30 out of a $1,000 transaction.

Senator Tkachuk: So 2 to 3 per cent.

Mr. Livingston: The interchange rate for Visa —

Senator Tkachuk: We'll get to that. Of that 2 to 3 per cent — and by the way, the maximum is 3 per cent in Europe and 2 per cent on —

Senator Ringuette: It is 0.2 and 0.3.

Senator Tkachuk: How much would you be taking, and how much would the bank be taking that backed up that credit card?

Mr. Livingston: I can't go into the actual specifics of the financial arrangements between us and the banks. We don't release that. I particularly wouldn't with him sitting next to me. The banks take the vast majority of that amount.

Senator Tkachuk: So they would take, what, 60 per cent, 70 per cent — 50 per cent — somewhere in that area?

Mr. Livingston: A vaster majority.

Senator Tkachuk: So like 80 per cent. Of the 2 per cent or 3 per cent we're talking about, 80 per cent is going back to the issuer — or 70 per cent — that actually said that Senator Tkachuk can spend up to $10,000 on this credit card that I'm issuing to him.

Mr. Livingston: That's right.

Senator Tkachuk: Just so that the people out there are clear: You're a small player in the total charge, and there are probably eight or ten — I don't know how many — banks competing for that credit card business.

Mr. Livingston: That is true, yes.

Senator Tkachuk: They could have different charges, which would make it easier for the consumer or for the retailer to take, right? In other words, there is competition among the banks. We're not talking Visa and MasterCard; we're talking the eight, nine or ten banks in the country that issue credit cards and have to compete for that credit card business.

Mr. Livingston: Right.

Senator Tkachuk: Part of the competition is to get retailers to accept it.

Mr. Livingston: That's absolutely true. There's competition at three steps in this process: There's competition for the acquiring banks or payment processors to sign up merchants, and they're competing on price and other factors; there's competition between Visa and MasterCard to have volume, merchant arrangements and issue arrangements flow through our system; and there's competition between the issuing banks for the end consumers, saying, ''Take our product; it has this feature'' or that product.

Senator Tkachuk: Right. I want to say that I'm a Westerner who doesn't mind banks. My father was a retailer. A lot of times people or the present retailers forget how it was. I would have loved for my father to have been able to have credit cards, because he used to extend credit to his customers on his own, and then they wouldn't pay him, and there was nothing you could do about it.

A customer today can take a credit card and go down to the bank that night and get cash for it. That becomes cash in his bank account, where before a cheque would take — I don't know — a week to transact sometimes, or even longer. I actually am old enough to remember those days, so I know what it's like.

So if there is government regulation on the cost of the transaction to the merchant, whose hide does it come out of — your hide or the bank's hide? In other words, who are we regulating here?

Mr. Lebeuf: I'll speak for MasterCard. MasterCard makes no revenue directly off interchange. All we do is pass it from the acquirer to the issuer. We set the interchange rates in lieu of default bilateral rates that they can negotiate themselves. We set a market rate and go from there.

We make nothing off the interchange; we make it off volume and transactions flowing through the system. It's in our interest to get as many transactions and as much volume as possible. If interchange is out of balance, we're hurting ourselves.

It's the banks that are at risk, per se, and the bank's customers. If interchange were regulated and artificially lowered, then the banks would have to make up that compensation either by cutting off credit to people on the margin or raising the fees or curtailing product benefits that consumers enjoy today — again, all with the global experience where retailers have been shown time and time again not to pass those savings on to consumers.

So while the idea is to lower the cost for retailers, they don't actually pass it on; it becomes a windfall for retailers, while consumers bear the brunt of the expense.

Senator Tkachuk: I have one small question.

The Chair: We have a lot of questioners here.

Senator Tkachuk: I think it's really important for consumers to understand the breakdown of the fees. So we don't say, ''Well, it's Visa'' or ''it's MasterCard.'' There's a whole bunch of people piled on to this 2 per cent or 3 per cent. I had a situation once. I hate bringing up a personal thing, but it was a situation where —

The Chair: Senator, is it a question?

Senator Tkachuk: Yes, it's a question.

The Chair: Good.

Senator Tkachuk: I had rented a home in Florida, and the home was not satisfactory and wasn't what I expected it to be. I had put a deposit of $2,000 on that home for my holidays.

The Chair: Question, please.

Senator Tkachuk: Visa paid for the $2,000. I phoned Visa, told them my problem; bang, I got a credit. Who pays for that insurance? Is it MasterCard and Visa or the banks?

Mr. Livingston: It's the banks that pay for that. Your bank paid for that. It's Visa's policy to say that you have no-fraud liability, but it's actually the bank that is underwriting that.

Senator Tkachuk: So they back me up, even though I get a bad purchase, which happens to many consumers all the time.

Mr. Livingston: It does. That's part of the costs that the banks assume, which are compensated for, if you will, by the interchange they receive in the transaction.

[Translation]

Senator Hervieux-Payette: Welcome. With your permission, I am going to speak in French a little. After all we do have viewers in Quebec who use Visa and MasterCard.

I would like some clarification. American Express, to my knowledge, is used at Costco. That is where as an individual you can save on costs because you buy in bulk. How is it that a large chain like Costco uses the most expensive card on the market? Tell me why people use it. Why should Costco impoverish itself? Were you asked to bid by that chain? Could you offer the same service as American Express? It is rather unusual that such a large chain, where such a large volume of merchandise is being moved, uses the most expensive card. Explain this to me.

[English]

Mr. Lebeuf: Costco had a business relationship negotiated directly with American Express where they had what's called a co-brand card, a Costco-Amex card tied to their membership, and so there was an economic interest between the two parties. The contract came up for expiration and Costco put their business up for tender. A number of institutions and organizations bid, responded to their request for a proposal, and I'm pleased to say that MasterCard won the business and American Express will no longer be accepted there, I believe by the end of this year. They're actually going to phase out American Express acceptance.

[Translation]

Senator Hervieux-Payette: So you can operate at a lower cost? If you responded to a call for tenders, this means that you reduced your interchange fee. Did you reduce your fee as compared to other merchants?

[English]

Mr. Lebeuf: I'm not at liberty to disclose the contents of the agreement, but it was a wide-scoping economic proposal that MasterCard made to business, as we would with any major retailer looking to get their business. It does not just include interchange, but a wide scope of different services that MasterCard was bidding on. It was a larger package that we actually proposed.

[Translation]

Senator Hervieux-Payette: That means that you can operate for less. Someone talked about the artificially low Interac fees.

[English]

What do you mean by ''artificially low''? What is artificial with low?

Mr. Lebeuf: Interac operates on a consent order from the Competition Bureau, as you probably are aware. As part of that consent order, they're a not-for-profit business and they have to operate on a cost-recovery basis. So their fees are representative of only their costs to operate their business, so there's no profit involved. They have a debit monopoly in Canada under the code of conduct and with the Competition Bureau's consent order. So they're free to operate, but the fee that they charge, which is actually 0.6 of a penny to acquirers and issuers — how that translates to 12 cents at a merchant is another story — but that fee is artificially low versus the value that that payment card provides to the marketplace.

If this was anywhere else in the world, it would not be that fee. It's artificially held low because of the consent order and the limitation that they have to work on a cost-recovery basis.

[Translation]

Senator Hervieux-Payette: So it is the nice bank that is giving me a gift when I use Interac, and it becomes the mean bank when I use my Visa or MasterCard, since it is going to get 80 per cent of the interchange fee. That is what I believe I heard earlier.

In other words, depending on whether we use Interac or a credit card, the same player, your partner, will be collecting a more reasonable amount as an operating fee, let us say.

[English]

Mr. Lebeuf: Are you speaking from a consumer perspective or a merchant?

Senator Hervieux-Payette: Merchant.

Mr. Lebeuf: From a merchant perspective, certainly most merchants accept Interac and they love the pricing because it is so low. But Interac, the debit card feature, is attractive only to certain consumers. A large number of consumers use Interac because they are using their own money. But there are times when credit cards have a distinct advantage, especially for affluent customers with more disposable income, to be able to make those purchases without worrying about whether or not the funds are actually in their account at that exact moment.

Senator Massicotte: There's no question that the introduction of credit cards in the marketplace has many advantages to merchants, for theft and all kinds of issues. The problem is that we in Canada have the honour of having the second highest merchant fees in the world. That's where the problem lies.

What would you propose? It's not an honour we're proud of. What can you do to bring down those fees? There's a lot of competition on the issuer side. The problem is that studies would indicate that merchants feel forced to accept one of predominantly two cards and they don't think there's ample competition at that level. There is a lot at the issuer level, but the banks decide what kind of rewards to give, how to attract customers. Merchants feel they have to accept the conditions.

What would you recommend to change that dynamic and get the merchant feeling more free to accept whatever card he wants and reduce the fees?

Mr. Livingston: It's a great question, senator. It's important to keep in mind that today any merchant can make that choice about whether or not they accept. As I mentioned before, some very large merchants have chosen not to accept Visa. Over a million smaller merchants don't accept Visa or MasterCard. It is a choice that people are making every day at every level within the merchant community.

There are two parts to the answer to your question about what we can do. The first is to continue with the existing conversations that are taking place with the Department of Finance, the merchant community and other stakeholders in this process to ensure that we come to a balanced outcome that addresses the concerns, both present and future, of the merchant community and the consumer community. I think that's the number one way or place for us to focus.

The second — and this is very much a corollary to that — is not to create unintended consequences with a very dramatic swing. Every market around the world has evolved in a different direction, has evolved from a different starting point to a different outcome. Where Canada is today, in our mind, is an almost perfectly balanced outcome where consumers get a lot of benefit; merchants get a lot of benefit. The state of digital commerce in Canada is healthy and we wouldn't want that to be jeopardized without having a consultative process where all stakeholders are considered.

Senator Massicotte: You say 40 per cent of merchants don't use credit cards, cash is used, but it's predominantly for small transactions. I suspect if you look at the total value of retail transactions, a very high percentage is credit cards. It's misrepresentative to say 40 per cent. They're usually small corner stores that accept cash because credit cards are so dominant in our system.

Mr. Livingston: That's a good point, Senator Massicotte. I would add, though, that there are many functions, such as paying your utility bills, tuition, that don't currently accept credit cards, where we very much would like them to accept credit cards. There are many small merchants who don't feel that they have the capability to take that on. There are big institutions that don't yet accept our products. We see this still as a marketplace where acceptance isn't where it could be and where we're going to be competing against MasterCard, American Express, Interac, and these new players in the market I mentioned before, to increase Visa acceptance.

[Translation]

Senator Bellemare: I would like to talk about the code of conduct a bit. You said that the code of conduct that was developed with the government and the parties was aimed at improving transparency. Concerning the part of the code that discusses the relationship between the merchants and the consumers, what are the highlights there, and as a subquestion, does this code of conduct improve competition, or not?

[English]

Mr. Livingston: Thank you, senator. If I can jump in with an answer to that question, I didn't mention this earlier, but Visa is very supportive of the code of conduct. We believe it did greatly increase transparency in the payments industry. We also believe that there are ongoing opportunities to improve and refine the code of conduct. That's taking place right now, and that will create even more transparency, particularly for the merchant community, and rights for the merchant community in terms of their contracts with acquiring banks and other payments providers.

In response to your specific question about the relationship between merchants and consumers, there are two elements where the code of conduct either has or could address that. The first is in allowing or empowering merchants to share with consumers their cost of acceptance for different card types. Let's say you walk into your corner store and your merchant says, ''Hey, I pay more for this than another brand,'' than the consumer can say, ''I like this person; I'm not going to do that.'' The merchant could say, even today, under the rules of Visa and other associations, ''I'd like to offer you a discount if you pay with cash.'' That's allowed as well.

The other element that —

Senator Bellemare: That's allowed in the code?

Mr. Livingston: It's allowed in Visa's rules. I believe it's allowed in MasterCard's rules, but I shouldn't speak for them.

The other element, though, is around consumers understanding the impact on merchants, depending on which cards they are using, and that is something that could be updated in the code of conduct to say that, when a consumer receives a card, they understand that, if it's a premium card, it may have higher merchant costs.

In our view, it's a very good outcome to have a situation where merchants can tell consumers how much they're being charged, so to speak, and consumers are aware that their purchasing decisions, their decisions about which card they use, might have an impact, down the line, on merchants.

[Translation]

Senator Bellemare: I thought that the code did not permit this type of exchange of information. Thank you.

[English]

Senator Ringuette: Gentlemen, welcome. I must say that I was most astonished by your presentation because you seem to be indicating that you're providing such a great service at such a low cost, and yet the evidence that we have is not that. By the way, this study that I'm going to be quoting from is not a study that has been paid for by either Visa or MasterCard. It's a study done by the European Credit Research Institute, and it was published in January 2014. Two very bright, eminent people looked at all of the issues and devolvement of interchange fees.

The Chair: Will you table that afterwards so that committee members can have it?

Senator Ringuette: Yes, I will.

Your statements are completely invalidated in this study with regard to the effect on American Express and to the benefits to merchants that have been passed on to consumers.

So gentlemen, I'm sorry, but we do our research and keep up to date on the new events.

That being said, in Australia, it's been 14 years that they have capped interchange fees at 0.5 per cent. They are maintaining it. You are still supplying the service, and consumers are still using their credit cards.

You have been in court battles since 2003, for 11 years, both of you — in different instances, but both of you — consistently and continuously since 2003, with the 28 countries of the European Union. Last year, with all the study and all of the court challenges and all of the court evidence that was brought forth, they decided that enough was enough, and they were regulating you.

They regulated you last July with regard to interstate merchant fees of 0.3 per cent, and next June, June 2015, all of the domestic interchange fees will be regulated to 0.3 per cent for credit cards.

The statement issued last year when the European Commission made that decision and introduced the legislation that has been adopted by the 28 countries said:

The regulation will impose caps for interchange fees applied with respect to the widespread cards which merchants in practice cannot refuse, that is to say, the consumer debit and credit cards.

They are also limiting the debit card because you are also in the debit card market in the European Union.

The cap levels — 0.2 per cent of the value of the transaction for debit cards and 0.3 per cent for credit cards — are those that were accepted in commitments to the Commission from Visa Europe and MasterCard, and also from the Cartes Bancaires in France. They give merchants a share of the benefits of accepting cards instead of cash.

My question to you guys is this: Why is it okay for you to have 0.5 per cent merchant fees in Australia for the last 14 years and to commit to comply with 28 European countries at 0.3 per cent, while, here in Canada, it is okay to gouge merchants and consumers at 3 per cent? By the way, the rumours that are going around of a code of conduct so that you will maybe reduce your fee by 0.10 per cent, are, for me, probably a rounding error.

The Chair: Senator Ringuette, you have asked a question. Could we hear a response?

Senator Ringuette: Canadians cannot accept less from your organization with regard to fees than the Australian merchants and consumers or the 28 European countries' merchants and consumers. You cannot gouge them more. It is no longer acceptable, and the Canadian tribunal said that Canada needed to regulate you guys.

The Chair: Mr. Livingston, Mr. Lebeuf?

Mr. Livingston: I'll start, then. I can't speak to what Visa Europe has agreed with the European Commission as Visa Europe is a separate company from Visa International. There's no ownership stake from Visa international into Visa Europe. With that in mind, though, Senator Ringuette, you've asked a very valid question, which is to say that other markets have come to a very different outcome than where we are today in Canada and where we are proposing that we approximately remain here in Canada.

I would focus very much on the fact that, in other markets where interchange is regulated so severely, there is significant consumer harm.

Senator Ringuette: That is not true, and we have all of the studies to show it.

The Chair: Sorry. Let Mr. Livingston respond, please.

Senator Ringuette: Yes, yes.

Mr. Livingston: In Australia, benefits on credit cards were reduced and costs were increased in the form of annual fees and other charges to consumers. In Europe, this is still something in process, but I would anticipate that the same sort of event would occur. In Australia, the Reserve Bank of Australia did point out that they didn't see the evidence of the merchant cost savings from this regulation, which are very real, at least initially, being passed on to consumers in any way.

I would just take a step back and say for Canada there is a real risk to harming consumers with this sort of regulation, as the reduced revenue from the banks gets offset with various other measures.

Mr. Lebeuf: I would concur with that. The European Union action is something that's about to take place. Those unintended consequences that we foresee down the road, Australia has been a clear example of what can and does happen.

Yes, interchange gets reduced. The banks get less revenue, and it doesn't offset their costs of operating a credit card program for consumers. Therefore, in fact, they have had to increase their fees to consumers and reduce the card benefits. There has been no evidence from the Reserve Bank of Australia that merchants have passed on those savings. It's been a windfall for the retailers.

In fact, some retailers have been surcharging credit card transactions well above what their acceptance costs would have been in the first place, which they had to clamp down on as well, as they did in the U.K. There was surcharging basically run amok, well above what their acceptance costs would have been anyway, even though they were reduced.

What we're talking about here are the unintended consequences of a primarily merchant-focused bill that benefits retailers but doesn't benefit consumers. It's a balance proposition; you have to look at both sides. We feel that the way our pricing is managed takes into account both sides of the equation. We believe the interchange today and what it will be is a fair representation of the value that merchants get in Canada and a fair benefit and deal for consumers. That's the balance.

If you tilt too much for the merchant side, consumers will be harmed. That's the evidence we've seen in mature markets.

Senator Ringuette: I would like to follow up with a quote from the announcement of the European Commission president. He says the following:

This regulation will first and foremost benefit consumers. Today, consumers pay for payment services in a hidden way, through inflated retail prices. This needs to change. We want consumers to be able to make conscious choices about the payment instruments they use, weighing the costs and benefits of these instruments for them.

I am aware that there are vested interests which have been fighting the idea of limiting interchange fees, trying to scare consumers that the impact of the regulation would be higher cardholder fees and no decrease in retail prices. However, there is every reason to believe that consumers will benefit from the disappearance of a hidden cost on their bills, since retailers compete on transparent retail prices.

The Chair: Senator Ringuette, our time is running out. Could you ask the question so we can get a response?

Senator Ringuette: The question is that the 28 European countries have been through this process for 10 years. They've analyzed the situation for 10 years, and their conclusion was to regulate both Visa and MasterCard at 0.3 per cent, not the 3 per cent that you're charging merchants and consumers right now.

By the way, that surcharge between what will happen in the EU and what is currently happening in Canada is costing Canadian merchants and consumers over $5 billion a year.

The Chair: Senator Ringuette, do you have a question?

Senator Ringuette: Enough is enough, and I will continue, you can be sure of that.

Senator Tkachuk: We should give her extra time to testify. We have guests who came here, and for the last 10 minutes I've had to listen to testimony of the sponsor of the bill.

The Chair: Senator Tkachuk, it was my decision that she have this time to speak.

Our time is up, but I've had a last-minute intervention from Senator Rivard who would like to put something on the record.

[Translation]

Senator Rivard: Fifty years ago, when banks started to issue credit cards, there were no annual fees and no travel points or other benefits. Today most people who have credit cards get travel points or discounts.

Do you get some income from the bank that issued the card when, for instance, a cardholder pays the annual $140 fee?

[English]

Mr. Livingston: No.

Mr. Lebeuf: No, we do not.

[Translation]

Senator Rivard: You may tell me that the banks would be in a better position to answer this question, but what is, currently, the percentage of cards that charge no annual fees and offer no benefits, as compared to those who offer travel insurance, for instance?

[English]

Mr. Livingston: Senator, we would have to get back to you with those facts and figures. I don't have that at hand. There are a significant number of credit cards in the Canadian marketplace that do not carry an annual fee, but I don't have the exact number.

The Chair: Thank you, Mr. Livingston. If you could provide that information to the clerk, that will be circulated to the committee.

Our time has elapsed. On behalf of the members of the committee, I would like to extend our great appreciation for your appearance today. Thank you.

This meeting is terminated.

(The committee adjourned.)

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