Enhancements to the Code of Conduct for the Credit Card and Debit Card Industry in Canada (“the Code”) have now been released. The Retail Council of Canada was a driving force in the creation of the original version of the Code in 2010 (“Code 1.0”), and has worked hard since that time on these important updates as a vocal member in the Finance Canada Payments Consultative Committee.
The focus of the Code 1.0 was to reduce the average interchange rate paid by merchants to 1.5% (a 10% reduction) effectively reversing the increasing trend which began in 2008. The enhanced version of the Code, which we will call Code 2.0, provides merchants with 3 additional benefits:
- CHOICE – New rules for contactless payment, particularly mobile payment, allowing merchants to choose whether to accept contactless payment, whose products to accept, and to choose between different payment types that may carry different costs.
- SAVINGS – Ensuring the estimated $2 billion in savings from network reductions in interchange are fully passed on to merchants; and
- PROTECTION – Greater clarity in statements, and better rules for contract termination, as well as a new process to resolve any disputes that might arise.
Ensuring Customer Preference with Mobile Wallets
Code 2.0 requires separate payment applications (“applets”) for each debit and each credit payment option within a mobile wallet. These applets must be uploaded individually and appear separately. The choice of whether to accept network debit or credit products remains with the merchant.
Code 2.0 also requires that all payment applets in a mobile wallet or device must be clearly identifiable and equally prominent, ensuring that where Interac is present in a mobile wallet, it is not crowded out by larger or flashier network credit or debit offerings.
Finally, the Code ensures that a customer using a mobile wallet is not “locked-in”, can set his or her own payment preferences, and is able to move easily between payment options at point-of-sale.
Merchant Acceptance of Contactless Payment
Code 2.0 ensures that a merchant who chooses to accept a network’s credit payments from a mobile device is not required to accept debit payments from that network and vice versa.
Merchants cannot be required to accept contactless payments at point-of-sale or to upgrade terminals to enable contactless payment, and if a merchant does choose to accept contactless payment, the merchant may, with thirty days’ notice, cancel without financial penalty.
The Code also specifies that “negative option” acceptance is not allowed. As a result, even if the merchant’s POS terminal is physically able to accept contactless payment, it does not mean the merchant must accept contactless payment; merchants must give their express consent.
Ensuring Reductions in Interchange Rates are Passed to Merchants
On November 4, 2014, agreements were announced by Visa and MasterCard to reduce their respective interchange rates on consumer credit cards from current levels to an average of 1.50%. As the leading advocate for these interchange fee reductions, RCC is determined to ensure that these savings are passed fairly on to all Canadian merchants. That’s where Code 2.0 comes into play, as it ensures that these savings are indeed passed on by:
- Requiring networks to incorporate the Code into all of their existing and future contracts, rules, and regulations with their participants, including issuers (banks), acquirers (processors), etc.
- Networks are required to ensure all of their participants do in fact comply with the Code; and
- In the event that an acquirer does not pass through the full savings from a reduction in interchange rates, a merchant has the right, with 90-days’ notice, to cancel their contract without penalty.
Although changing processors is obviously disruptive for merchants, RCC believes that the combination of network pressure on acquirers and the potential for merchants to walk away from their contracts should be sufficient to ensure that most acquirers pass on the full savings.
Increased Clarity, Notice and Dispute-Resolution
The remaining changes made by Code 2.0 deal with clearer statements, earlier notice of changes and the establishment of a dispute-settlement route. The primary goal is to provide merchants with cost certainty over the life of a contract with an acquirer.
Payment card network rules will ensure that merchant statements include the following information:
- Effective merchant discount rate for each type of payment card that the merchant accepts;
- Interchange rates and, if applicable, all other rates charged to the merchants by the acquirer
- The number and volume of transactions for each type of payment transaction;
- The total amount of fees applicable to each rate; and
Details of each fee and to which payment card network they relate.
Code 2.0 expands the 90-day notice requirement of fee changes to include reductions in interchange rates and empowers merchants to cancel their processor contract if the savings are not fully passed on. Code 2.0 also provides that fixed-term contracts will not be automatically renewed for the initial term length, but will instead convert to automatically renewable contract extensions of no longer than six months.
Code 2.0 lays out a dispute-resolution path. If a merchant believes that a service provider’s conduct is contrary to the Code, the merchant may report the issue to its acquirer. Service providers include acquirers, processors, independent sales organizations, and referral agents. The acquirer will review the issue with the merchant, undertake an investigation, and respond within ninety days.
If a satisfactory resolution is not achieved, the merchant may submit the complaint to the payment card networks, who will work to find an appropriate resolution, and communicate the outcome of the investigation directly to the merchant within forty-five days of receiving the complaint. And, should the merchant choose, they remain free to directly file a complaint with the Financial Consumer Agency of Canada, or a payment card network, to investigate non-compliance with the Code.