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The Green Sheet Online Edition

July 28, 2008 • Issue 08:07:02

Canadian payments revolution - eh!

By Adam Atlas
Attorney at Law

The Canadian payments industry, like Canada itself, is often underappreciated in the United States. Chances are the average U.S. ISO or merchant level salesperson (MLS) knows little to nothing about the payments sphere up north.

It may come as a surprise, then, to many readers of The Green Sheet that Canadian payments is largely controlled by a handful of financial institutions many believe constitute a monopoly that stifles competition - the very lifeblood of American commerce.

But Canada may have just taken a significant step toward breaking that stranglehold. On July 12, 2008, myself, along with 49 colleagues from Canada and the United States participated in the inaugural event of the Canadian Acquirers Association. The three-hour founding cocktail, sponsored by ISOs VersaPay Corp. and Pivotal Payments, took place at the Hilton Toronto Airport in Toronto, the business capital of the Province of Ontario.

The thrust of the event was to bring together the Canadian acquiring community and create, for the first time in Canada, an organization devoted to the betterment of all professionals in the industry, from providing education to networking opportunities, to representing the industry before the Canadian government and abroad with the goal of opening up the market to greater competition.

After an hour of presentations, the bar was opened and, in fine Canadian fashion, attendees were buzzing with gossip and business insights in an atmosphere that broke new ground for Canada. One attendee, formerly employed by Interac, Canada's near-monopoly debit network, may have summed up the feelings of many when he said the event was "revolutionary."

Oh, Canada

With just over 33 million inhabitants, Canada has one-tenth the population of the United States. But, disproportionately, it has much less than one-tenth the number of U.S. banks. Hence the lack of competition in the Canadian banking market.

What is more, Canadian banks have been lobbying the government to permit additional consolidation in the banking sector, which, if allowed, will lead to even less competition in the acquiring sphere.

ISOs and other businesses in Canada lament attempts by banks to dominate all payments markets. For example, white-label (private) ATM operators have a hard time accessing cash from banks. The Canadian equivalent of the U.S. Federal Trade Commission is the Competition Tribunal, which hears cases related to antitrust violations in Canada, or competition law matters, as they are known here.

As recently as 2006, the Bank of Nova Scotia was a defendant in a case in which it was alleged to have illegally reduced competition in the online debit payments market; the bank won, and the plaintiff, B-Filer Inc., is now having a hard time operating without cooperation from the defendant and other Canadian banks. B-Filer. was the processor for UseMyBank Services Inc., an online debit payment processor based in Toronto.

Canada has never gone through the deregulation of banking that occurred in the United States. The deregulated market in the United States allows over 100,000 financial institutions to provide a competitive marketplace for banking in America. Such is not the case in Canada.

With so little competition in the Canadian market, a long tradition of in-house sales of merchant services, and with the biggest processor - Moneris Solutions - being owned by two of the biggest banks, it's not hard to understand why new independent payments businesses face an uphill battle to integrate with Canadian banks.

Blueprint for change

Hence the need for an organization like the CAA. Networking at events like the Toronto cocktail will, as U.S. acquirers well know, create new contacts and business opportunities for all participants.

Education through the CAA will help acquiring entrepreneurs keep up-to-date on the evolving Canadian marketplace.

As the association gathers momentum, the CAA may one day be mandated to represent the Canadian acquiring industry before third parties.

Such entities would include committees of the Federal Canadian Parliament - akin to the U.S. Congress; Interac, the dominant debit network in Canada; Visa Inc. and MasterCard Worldwide; and the Canadian Payments Association, created by the government to regulate key aspects of payments in Canada and dominated by Canada's powerful banks.

The CAA will be structured similarly to the U.S. regional associations. Unlike the Electronic Transactions Association, which is a membership organization, the CAA will be event-driven, like the Northeast Acquirers or the Western States Acquirers associations.

The prevailing thinking is that an event-driven organization is less costly to maintain and less demanding on members and organizers.

The board of directors consists of myself and four other volunteers from across Canada's vast geography that represent a cross section of acquiring businesses. I selected the individuals primarily based on their level of interest in the association. (Essentially the first five people - who recognized the importance of the association.) They are:

  • Adam Atlas, best known as a legal adviser to payments companies and the author of "Legal ease," a column that appears monthly in The Green Sheet

  • Michael Gokturk, Chief Executive Officer of VersaPay Corp., a Canadian ISO

  • Michael Jaffe, Vice President of Global Marketing and New Programs of Nxygen Payment Services, a U.S.-based ISO with considerable activity in Canada

  • Anil Bissa, Regional Sales Manager, CardSolve International (a First Data Corp. affiliate)

  • Kevin Turko, President of Data Shapers, a Calgary-based processing and gift card provider

Gokturk believes the CAA could help bolster the integrity of the industry in the eyes of merchants through initiatives such as codes of conduct and certification for ISOs and MLSs.

This is a common theme in acquiring associations, so it was no surprise to hear it at CAA's founding event.

Bissa noted that the association could be useful for sales organizations that wish to learn more about the industry.

All board members expressed satisfaction with the founding event, saying it exceeded their expectations and confirmed the importance of the CAA for Canada.

Advice from the heartland

If Toronto were part of the United States, it would be a Midwestern city. So, it made sense that the Toronto event was attended by two representatives of the Midwest Acquirers Association: Jim McCormick, MWAA President, and Mark Dunn, MWAA Treasurer.

Dunn, who runs the acquiring consulting business Field Guide Enterprises LLC, popular for its Field Guide for ISOs seminars, gave a remarkably substantive and informative presentation entitled "Practical tips for new industry associations."

One of the key distinctions Dunn emphasized was the difference between membership-driven organizations, like the ETA, and event-driven organizations, like the MWAA. The MWAA holds an annual event that spans three days and welcomes hundreds of guests, so Dunn spoke to the novice association from the perspective of a seasoned association leader.

He emphasized, for example, how important it is to scrutinize an event's hotel contract so as to avoid surprises. This gave me an opportunity to joke about how impressive the Hilton refreshments brochure was compared to the small corner refreshments table actually served to attendees. Also, after the event, the hotel surprised the CAA with a $300 fee for guest parking.

Dunn's presentation is available for download at the CAA's Web site, www.acquirers.ca, and would be useful not just for new associations but for existing ones as well.

Strong U.S. turnout

Overall, a considerable number of attendees were from the United States. John Barrett, from CardSolve International, was perhaps the best known American in attendance. Lane Gordon and Adam Hark of MerchantPortfolios.com were also present.

Philip Fayer, President of Melville, New York-headquartered Pivotal Payments, was in attendance, too. Pivotal operates a U.S. ISO channel, as well as a Canadian acquiring organization. It is therefore well positioned to import its U.S. experience into Canada.

Canadian ISOs have been acquired by U.S. ISOs of late. Heartland Payments Systems Inc.'s recent purchase of Collective Point of Sale Solutions, for instance, is evidence that the interest of U.S. acquiring organizations in the Canadian market has increased.

Ironically, U.S. acquirers are more aggressive in pursuing the Canadian market in many instances than their Canadian counterparts.

Apart from Moneris, the Canadian acquiring market leader owned by the Royal Bank of Canada and the Bank of Montreal, other dominant Canadian processors are affiliates of U.S. organizations Chase Paymentech Solutions LLP, Global Payments Inc. and Elavon Inc.


The cocktail was remarkable as much for the people and organizations that were absent as for those who attended. Canada's largest acquiring processor, Moneris, was a no-show. Attendees speculated that Moneris positions itself more in concert with its bank owners than with the independent payment entrepreneurs who would be interested in the association.

Visa and MasterCard were also absent. MasterCard had an event in Montreal on the same day but still did not send any representatives. Visa did not have any conflicting events, it failed to make an appearance all the same.

Attendees surmised that Visa and MasterCard are so dominated in Canada by Canada's six large banks (which account for virtually all acquiring in Canada), that they chose not to invest time or sponsorship in an event intended for the independent acquiring community. One attendee noted that Visa should have promoted the event to its Canadian member banks.

Another notable absence was Optimal Payments, which is headquartered in Montreal.

But First Data, Hypercom Corp., Discover Financial Services LLC, Open Solutions Inc., Elavon, TASQ Technology Inc. and Beanstream Internet Commerce Inc. were well represented, and all expressed appreciation for the event, as well as an interest in having more and bigger events in Canada.

One large constituency at the cocktail were cash advance businesses. CanaFunding Corp., Merchant Cash Direct and a collection of other large and small advance companies were present. Some such Canadian companies are branch offices of U.S. cash advance businesses; others are homegrown. Both the local boys and the out-of-towners consider Canada to be a green - meaning open - market for cash advance, while the U.S. advance market is becoming increasingly competitive.

The turnout was healthy, but upcoming events of the CAA promise to be even better attended as participants from the first one promote future gatherings within their specific constituencies.

The Canadian way

American entrepreneurs are accustomed to the conference circuit and, for decades, have used them as networking opportunities and for educational purposes. In Canada, however, business people tend to be more reserved and less outgoing. As such, attending the founding of a new industry association took a measure of courage, by Canadian standards.

There had never been anything quite like it in Canada before, so the board and participants were cautious and did not know what to expect. As attendees arrived at the Hilton, they looked around with a mixture of curiosity and apprehension. It didn't take long, however, for all that to melt away, with a little help from the open bar. Canadians prefer not to be pitched on new business ventures in a gung-ho style. They prefer, instead, a more reserved approach. They view aggressive sales pitches with suspicion. Some U.S. acquiring organizations view the CAA as opening up the field in Canada to their well-tuned aggressive sales methods; others prefer to partner with Canadian ISOs to ensure sales pitches retain local flavor.

And then there is Quebec. While a number of businesses with offices in Montreal were represented, such as Pivotal Payments and Merchant Cash Direct, not much French was spoken at the event.

Quebec is a province of Canada (like a U.S. state) located north of New York, Vermont and Maine. Most people in Quebec speak French as their mother tongue. As such, anyone doing business in Quebec, which accounts for about one quarter of the Canadian population, must do so in French for both business and legal reasons.

First of all, French speaking Quebecers do not respond well to marketing in English. And second, laws exist in Quebec that essentially require certain kinds of marketing and certain kinds of contracts to be drafted in French. Being the business capital of Quebec, the city of Montreal is famous for its quality of life, which has a European flavor.

Doing business in Canada

U.S. businesses should know it's relatively easy to do business in Canada, although some acquirers will oblige U.S. ISOs to incorporate before becoming registered Canadian ISOs. It is possible to incorporate a wholly U.S.-owned company in Canada within a matter of days.

As a payments industry attorney, I have helped a number of U.S. ISOs and cash advance companies establish themselves in Canada. Although I am based in Montreal, I advise mostly U.S. payments companies, and I consider myself a port of call, so to speak, for U.S. ISOs looking to expand up north. In my experience, many American ISOs talk about coming to Canada, but few actually follow through.

CardSolve International, Elavon, Paymentech and Global have all negotiated deals for Canadian ISOs. U.S. individuals interested in jump-starting Canadian ISOs should huddle with their acquirers first to open doors at their Canadian affiliates. In other words, if you have a U.S Paymentech deal, ask Paymentech to introduce you to someone in Canada who can do the Canadian deal for you. But the biggest disincentive for new ISOs in Canada is dealing with Canada's banks and, by extension, their processors. When ISOs approach banks in the United States offering to bring them new merchants, the usual response is, "Thanks a lot. How can we make it easier for you to bring us new business?" But, in Canada, banks are more likely to say, "Please convince us why we should do business with you."

Moving forward

By popular demand, the CAA is planning a second event for November 2008. Details will soon be announced at www.acquirers.ca. Since the founding cocktail, the association has received a number of calls and e-mails from companies that want to participate in the next gathering.

Despite the heady optimism generated by the positive response to the founding, the board remains characteristically modest about the CAA's goals. For the coming year, the goals are to:

  • Improve the organization's Web site

  • Hold another event

And that's about it. The association will strive to remain grounded and focused on its goals, and will deliver value added programming and events to the extent that demand warrants, which for now remains high. Individuals and organizations interested in the CAA and perhaps attending future events are encouraged to visit the Web site, where links are posted to all the U.S. regional associations, as well as the ETA. It is clear that the CAA regards Canada as another region within the integrated North American economy.

Another resource for information about the Canadian payments industry is The Frontier Times: Canada's Electronic Transactions Journal. It can be accessed at www.frontiertimes.ca. It is a bimonthly electronic newsletter focused solely on Canadian payments. It offers links to Canadian banks and acquirers and is a good starting point for anyone looking to start payments businesses in the "Great White North."

Onward, Canadian payments

According to ATM Marketplace.com, from December 2007 through March 2008, Canadian shoppers spent record amounts and made significantly more cross-border purchases than in previous months. First come the shoppers, then the ISOs. The CAA is poised, in its truly low-key Canadian way, to serve a growing ISO base in Canada. end of article

In publishing The Green Sheet, neither the author nor the publisher is engaged in rendering legal, accounting or other professional services. If you require legal advice or other expert assistance, seek the services of a competent professional. For further information on this article, e-mail Adam Atlas, Attorney at Law, at atlas@adamatlas.com or call him at 514-842-0886.

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

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