Interac in a fight for its life

With lucrative banking fees in their sights, Visa and MasterCard aim to challenge a home-grown success

THERESA EBDEN
April 15, 2009

With the debate raging in Ottawa about credit card rates, you may have overlooked another issue in the mix: the uncertain future of your bank debit card.

Let's put it this way. Don't get too used to calling your debit transactions "Interac," because Visa Canada and MasterCard Canada may yet challenge the monopoly held by the national not-for-profit Interac Association, a co-operative payment system created in 1984 by the country's big banks and merchants.

Many Canadians don't realize that Interac is a low-cost anomaly.

In other countries, high-fee, for-profit systems from companies such as Visa, MasterCard and China UnionPay reign. Now the first two are considering a foray into Canada. Visa has held talks with Canadian banks and retailers, said Tim Wilson, head of Visa Canada. Visa debit is used by 844 million cardholders in 170 countries, according to company reports.

"The bank card in Canada has been tremendously successful, but it's relatively plain vanilla," Mr. Wilson said.

MasterCard said recently it will "create competition in the Canadian debit market where it has never existed" with its debit system, Maestro, used by 652 million people in more than 100 countries. Under the system, Canadian customers could use their debit cards abroad, and retailers here could accept foreign cards.

Interac is in a fight for its life, says Mark O'Connell, its president and CEO. He maintains it is a world-class, low-cost payment system that won't survive unless its regulatory structure is altered by the Competition Bureau.

Interac should be "a more independently run commercial organization that has the ability to innovate," he said. As it stands, the not-for-profit association can't raise funds for research and development of new products, such as high-tech terminals.

"We cannot let such a successful debit system continue in this shackled fashion, as the market changes around it," Mr. O'Connell said. "I think it would be a tragedy to have this made-in-Canada success story obviated by U.S. card companies."

Analysts say that Visa and MasterCard can enter Canada with new products and set up lucrative fee structures for all involved - themselves, the banks, and the middlemen.

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Visa, Mastercard, Interac, Fight for Life