If you’ve been paying attention to what’s going on in Canada’s debit payment industry, you probably realize that changes are afoot that will potentially impact the way you do business – and the amount you pay to process debit transactions.

Since 1984, the Interac Association has operated Canada’s nation-wide debit payment system. While Canadians still have a slight preference for their credit cards, debit card payments are growing exponentially. Merchants, on the other hand, prefer debit cards because the cost of processing debit payments is so much lower. Typically, merchants pay a flat rate per transaction for debit (8 to 10 cents), while credit is typically a percentage of the transaction (approx. 2 percent). That can make a big difference on a purchase in the $100 range: merchants keep $99.90 in the case of debit, but only $98.00 if the transaction is a credit payment.

New Competition
What Canadian merchants may not realize is that a fixed debit cost in the 8 to 10 cent range is a global anomaly. In other regions of the world, Visa and MasterCard have set up debit payment systems that are widespread and ubiquitous. They are also more expensive for merchants because financial institutions make money on the transaction interchange fee. In Canada today, financial institutions don’t actually get compensated by the retailer for completed debit payment transactions. In the U.S., by comparison, institutions make almost 25 cents per transaction (less various costs for processing fees and assessments).

Is it any wonder then that Canadian institutions are all for opening up Canada’s debit network for broader competition from the major credit card companies? There is a case to be made for innovation, and what merchants and consumers are willing to bear to have more debit capability. Because Interac is a not-for-profit association, some have asserted that it can’t invest enough to take debit to the next level, with programs like loyalty/rewards, insurance and other purchase incentives. Opening up the debit system to the card companies would likely create more attractive, consumer-friendly debit card products (with programs and features similar to what we see today in the credit card world), but at what point would retailers be forced to increase prices to cover the cost of increased processing fees? Margins are already incredibly slim in some cases, and challenging economic conditions aren’t helping to change that. Could increased debit competition be a tipping point that forces merchants to fundamentally re-think their businesses?

Stronger Consumer Benefits
The consumer benefits of greater debit card competition would certainly be a boon to the average consumer, enabling much more flexible debit card usage in foreign countries and richer incentive programs. As a merchant, however, it’s important to consider the impact that a more expensive debit card processing system could have on your bottom line. While we’re all in favour of offering consumers a wide range of payment alternatives, now is a good time to start thinking about ways to streamline your retail operation in the event that Interac’s monopoly on Canada’s debit system is successfully challenged by the card companies.

There is certainly no reason for panic, but forewarned is forearmed. Stimulating debit card payments through increased competition is certainly not a bad thing. Even a completely open debit card market would be less costly for merchants than continuing to process credit transactions. If enough volume can be moved to debit cards, it’s possible that merchants might even see a reduction in their overall payment processing costs. BizAssist recommends that its merchant members pay close attention to possible changes in the debit card landscape, and start thinking proactively about the potential impact to operating costs.