The free-market-driven U. S. debit payments system, in which both consumers and merchants have choices in debit processing options, saved cardholders more than $4.3 billion in fees last year when compared to the system utilized in Canada, according to one new analysis.
"Unlike in the U.S., every major bank in Canada charges its customers a per-transaction fee every time they use their debit card," stated the PULSE EFT Association. "Moreover, there is only one form of debit in Canada-PIN-based and it is supported by only one electronic funds transfer network, Interac."
That was among the key findings of the newly released white paper commissioned by PULSE, which engaged Boston-based Dove Consulting, an electronic payments research and consulting organization, to analyze and compare the debit system utilized in Canada with the debit payment environment in the United States.
Stan Paur, President and CEO of PULSE, said the study was prompted by references made at conferences and by industry commentators citing the benefits of the Canadian debit model compared to United States offerings.
Among the findings of the PULSE/Dove report:
The two countries, though neighbors, are different in almost every respect relative to payment systems.
* Canada has only eight major national banks, which control 93% of banking assets. By contrast, the U.S. has more than 17,000 banks and credit unions, and the eight largest banks control only 41% of banking assets.
* Canada has only one electronic payments system and consumers have access to only PIN-based debit, whereas the U.S. has multiple competing national and regional debit networks and consumers have a choice of PIN or signature-based payments. (Recent studies show that nearly 40% of cardholders in the U.S. prefer signature-based debit, an option not available in Canada.)
* Canadian consumers pay a fee (C$0.50-0.60) to their financial institution for each electronic payment transaction, whether making a purchase or getting cash from an ATM. In the U.S., consumers generally pay nothing to make purchases or access cash from their financial institution's ATMs.
* Canadian consumers typically pay a fee each time they write a check, whereas many U.S. banks promote free checking. These per- check fees paid by Canadian consumers generally are higher than those they pay for PIN debit transactions.
* Canadian merchants pay no interchange fees for a debit transaction, thereby getting a valuable service without compensating the card-issuing financial institution, whereas U.S. financial institutions receive revenue for use of their databases and for guaranteeing payment for every transaction.
Paur suggested that it is important not to dismiss arbitrarily calls for change in electronic payments. However, at the same time, he said it is essential to appreciate the impact of change on the users of the system.
"We were intrigued by ongoing references to the supposed superiority of the Canadian debit model but were unable to find any objective analysis comparing the two approaches," he said. "This study gives us a better understanding and appreciation of why retailers, financial institutions and consumers might have different perspectives on which approach is preferable."
Paur noted that while it is understandable why retailers would prefer a no interchange fee environment, it is unclear how consumers would respond to or benefit from the shifting of costs. After contrasting the two systems, the Dove white paper concludes that the Canadian model is unlikely to be embraced in this country anytime soon.
"It is highly improbable that the U.S. could ever transition to such a model," observed Tony Hayes, Managing Director of Dove's Financial Services Practice and author of the report. "The ultimate challenge is to insure that competitive and efficient alternatives exist for retailers, the financial industry and, most of all, consumers.
