Visa Canada Wants Banks To Offer Visa-Branded Debit Cards

IMGCAP(1)]

By Frederick H. Lowe
Visa Canada is holding discussions with that nation's banks hoping to persuade them to issue "co-badged" PIN-debit cards that contain both a microchip and a magnetic stripe. Only the Interac network now sponsors debit card issuance in Canada, and financial institutions there issue only PIN-debit cards; no signature-debit market exists in Canada.

"We're actively discussing Visa PIN-debit with banks, explaining the card's value to them, consumers and merchants," Tim Wilson, head of Visa Canada in Toronto, tells ATM&Debit News.

The co-badged cards would contain a smart chip for acceptance at point-of-sale terminals that accept chip card payments. If a consumer selects the chip function to complete a purchase, the merchant would have the option to process the transaction over the VisaNet switch, Wilson says. The smart chip contains the cardholder's four-digit PIN.

Interac, currently Canada's only debit network, announced in 2007 that it was moving to chip-based cards. Its cards also would contain a mag-stripe to accept PIN-debit purchases processed through Interac.

If Visa enters Canada's debit card market, cardholders would have the option of using a debit card's chip to make purchases over Interac's network, a Visa Canada spokesperson says.

Moreover, "if a merchant chooses not to accept Visa debit at the point of sale, or is not chip-enabled, the Visa debit card can still be used, but the purchase will be processed as an Interac transaction," Wilson says.

Although not issued in the U.S., co-badged cards are common in about 17 countries, including Australia, Brazil, France and Russia. Visa Canada is supporting the co-badged card to provide Canadians with more than one payment choice on one card. "We believe choice is good thing," Wilson says.

Wilson also knows chip card acceptance soon will become the dominant form of payment acceptance throughout Canada. Many point-sale-terminals there already accept chip cards, and several years ago the country's payment networks announced they want all of Canada's point-of-sale terminals to be chip-enabled by 2012.

Visa Canada also is walking a tightrope. Although Wilson did not disclose the names of the banks he wants issuing Visa's debit card, many of the institutions he has to persuade founded the Interac Association in 1984.

Interac has a monopoly on the country's debit market, but it is seeking to change its charter from a not-for-profit organization to a for-profit business to compete more effectively in Canada's changing PIN-debit market. MasterCard Canada also has made it clear it wants to enter Canada's debit market.

Interac says it is well aware that Visa and MasterCard are promoting their debit products in Canada but remains confident in its ability to meet the market's needs. "Interac has become Canada's leading payment brand for a reason — we have been providing Canadians with a convenient, reliable and trusted form of payment nationwide," the network said in a statement. "When consumers think debit, they naturally think Interac."

Visa's co-badged card could mollify groups such as the Retail Council of Canada, a 40,000-member organization. The council urged Canada Finance Minister Jim Flaherty to persuade Visa Canada and MasterCard Canada not to enter the country's PIN-debit market. Flaherty's office declined.

 If Visa and MasterCard are allowed to issue PIN-debit cards, they would triple merchants' interchange rates, and merchants would have to pass the higher costs onto consumers, the council charges (ADN, 3/5).

MasterCard Canada angrily blasted the council's efforts. "It is an extraordinary suggestion on the part of the council to call upon a politician to preserve Interac's debit monopoly," MasterCard wrote in a statement (ADN, 3/5).

To improve communication between it and the country's merchants, Visa Canada posted its debit card interchange rates on its Web site. The rate for groceries, for example, is 0.15% of the sale plus 5 cents. The same rate applies to gasoline purchases.

Interac does not directly charge fees to customers and merchants. "The association operates on a cost-recovery basis, which means the association charges member financial institutions a "per-transaction" fee sufficient to cover operating costs," Interac says on its Web site.

In Interac's case, low cost also equates to a decided lack of access, says Wilson, who is quick to point out the limits of Interac cards.

Consumers rarely can use the cards to shop on the Internet,  and the cards primarily are accepted only in Canada. Consumers, however, can use Interac cards in cross-border transactions between the U.S. and Canada through an agreement Interac has with NYCE Payments Network LLC, Wilson says.

On the other hand, Visa, a payments giant, is accepted in 170 countries, he says. Consumer also can use Visa to shop online, by phone and for mail-order purchases.

The growth of Internet shopping is one of the key drivers behind Visa's decision to enter Canada's PIN-debit market, Wilson says, noting the other is innovation. "We're at the forefront of innovation, offering cardholders such products as contactless cards," he says.

None of Canada's major banks contacted by ATM&Debit News would discuss their talks with either Visa or MasterCard.