Friday, September 12, 2008
The Interac Association, the not-for-profit cooperative founded in 1984 by Canada's five financial institutions for the purpose of processing electronic transactions, is negotiating with Canada's Competition Bureau, which is comparable to the Federal Trade Commission in the United States, to restructure the association into a for-profit organization.
In 1996, Interac signed an agreement with the Competition Bureau that stipulated the association be managed on a not-for-profit basis after the bureau accused Interac of conspiring with the five financial institutions to set the interchange debit fee structure – in other words, price fixing.
Mark O'Connell, Interac's Chief Executive Officer, said in a statement that Interac's not-for-profit status puts Interac at risk of falling behind technologically as the Canadian payments industry evolves. O'Connell said new technologies in the payments space – in contactless, mobile payments and e-commerce – mean Interac should be developing as well to keep pace. But to do that, Interac needs to generate income, he said.
However, Adam Atlas, Attorney at Law and President of the Canadian Acquirers Association, believes allowing Interac to restructure to for-profit status would only strengthen its grip on the industry. "I once asked an Interac executive whether he thought a monopoly was good for innovation in the [Canadian] payments market, and he more or less said yes," Atlas said.
"They have the monopoly. And going from not-for-profit to profit status is a little disappointing. I mean, why should this company be given a monopoly over debit payments in Canada?
"The Competition Bureau is a lame duck organization, ineffective at promoting competition in the financial service sector in this country. I don't expect anything from them, and I know this from direct interactions with them over payments issues related to competition in the payments market within Canada," he added.
According to Atlas, the picture for the Canadian payments industry looks bleak: The banks that control Interac would capitalize on Interac's for-profit status by becoming investors.
He believes the relationship between the banks and Interac has a stranglehold on the industry. Interac sets the debit card fee structure and the banks run Interac, so competition from potential new banks, acquirers and processors is eliminated.
"In my view all the actions by Canadian banks are in one way or another designed to protect their market share, and any new financial institutions trying to enter the Canadian payments sector are going to affect that market share," Atlas said. "And the Competition Bureau is run by a government that doesn't want to see additional expansion in the banking industry."
According to Atlas, the current system makes it extremely difficult to start an independent debit network in Canada, and it discourages a new influx of business.
In a perfect world, Canadian would have "a lot more banks that are actively involved in acquiring," Atlas said. "There would be an openness on the part of banks to service payment companies and create other debit networks to induce stronger and fairer competition.
"Interac is not some independent charity operating for the benefit of mankind," Atlas said. "I mean, it operates to benefit the banks. And to be fair, we do have a very stable banking system, and that is the one upside of all this. But the question is whether that stability will be enough. I'm sure they had a stable banking system in the old Soviet Union as well."
At press time, The Green Sheet had been unable to reach a representative at Interac for comment.
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