As Canada moves ahead with its plans to adopt a chip-and-PIN based payment card system, the two leading players in the U.S. debit card market–Visa Inc. and MasterCard Worldwide–very well could launch a marketing campaign called "Chip-and-PIN: Let Us In."

Both Visa Canada and MasterCard Canada hope to persuade Canadian financial institutions to issue "co-badged" debit cards that contain both a smart chip and a magnetic stripe.

"We're actively discussing Visa PIN-debit with banks, explaining the card's value to them, consumers and merchants," Tim Wilson, head of Visa Canada in Toronto, tells ATM&Debit News, a Cards&Payments sister publication.

Canada could represent a challenge for Visa and MasterCard, which muscled their way into the U.S. debit market by forcing merchants that accepted their credit cards to also take their branded debit products. The card brands eventually paid a combined $3 billion to settle a merchant class-action lawsuit challenging their "honor-all-cards" rules.

Though they agreed to drop those rules as part of the settlement, the millions of merchants accepting their debit products essentially were forced to continue doing so because their customers had come to expect it.

In Canada, that won't be the case. Merchants will have the choice up front whether to accept Visa- and MasterCard-branded debit cards. That will pit market forces against each other that did not exist in the U.S.: competition between the brands to provide issuers interchange revenue, and merchants having the option to accept their debit cards based on cost, which includes interchange.

This might backfire on both Visa and MasterCard. If the merchant pressures succeed in keeping interchange low relative to what merchants in the U.S. pay, it will only fuel U.S. merchant groups' angst, which already has prompted some U.S. lawmakers to look closely at interchange's effects on the market. A big discrepancy between what Canadian and U.S merchants pay in interchange would only fuel that fire.

Anticipating a confrontation, the Canadian House of Commons Standing Committee on Industry, Science and Technology plans to investigate Canada's debit card payment system. Committee members voted to launch an investigation after the Interac Association, Canada's lone debit network, announced plans to change its organizational structure from a not-for-profit to a for-profit business to compete with Visa and MasterCard.

"[Interac's] announcement has created a slew of issues, and we want to investigate interchange rates between banks and merchants," says Anthony Rota, the committee's vice chairman. "If the rates increase, we want to know how they will affect consumers and small businesses and if we should have some regulations in place."

All Rota needs to do is look south for an indication.

Jeffrey Green


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