U.S.-based card networks are making it clear they are hungry for a bigger piece of Canada's debit card market, which is making the nation's merchants nervous.
Visa Canada's new TD Canada Trust Visa Debit card, announced June 26, is part of an emerging crop of cards that pushes the boundaries of a 2010 Canadian government order that severely restricts cardholders' use of any network-branded debit card within Canada.
The order requires all point-of-sale transactions to flow over Interac, Canada's well-established domestic debit scheme. Merchants applauded that decision, which they say will keep transaction fees much lower than if international card networks were allowed to process debit cards in Canada.
TD Canada Trust's new Visa debit card is, in some ways, a compromise — the product works for point of sale purchases only from merchants outside of Canada. It can be used for phone, mail-order and online purchases from merchants based anywhere.
But despite its limitations, this new Visa card is part of a growing movement that began when the Canadian Imperial Bank of Commerce issued Canada's first Visa-branded debit card in 2010.
"The way some see it, the writing is on the wall," Christie Christelis, president of the Canadian payments industry consulting firm Technology Strategies International, said in an interview. "Visa and MasterCard are building a foothold for debit acceptance in Canada and the pressure will continue to build."
The new product underscores the fact that both Visa and MasterCard are eager to break Interac's lock on the Canadian market, analysts say. Seeding the market with debit cards is one way to do that by offering consumers the allure of potential rewards programs and other conveniences branded debit cards provide.
It remains unclear whether or when the card networks might get permission to offer full debit card service at the point of sale in Canada, Christelis says.
Because Interac has limited support outside the U.S., Canadians struggle to manage card payments when traveling abroad. Most of Interac's international transaction ability is provided through agreements with major PIN-debit networks along its borders and in major destinations in states such as California and Florida.
The Canadian government halted the international card networks' efforts with a Code of Conduct for the Credit and Debit Card industry, which is essentially a voluntary agreement.
"In principle, there is nothing stopping Visa and MasterCard from eventually issuing debit cards in Canada; it would only require them flipping a switch so that cards would be processed like they do around the world," Christelis says.
Merchants are "very worried" about the growing emergence of Visa- and MasterCard-branded debit cards in Canada, Christelis says. "The fear is that merchants are going to lose what has been a very good arrangement and low interchange rates in Canada."
Separately, Toronto-based Interac Association on June 26 said that TD Canada Trust is now issuing contactless versions of its debit cards under the Interac Flash brand.
Interac Flash is "rolling out across Canada with increasing merchant acceptance," Interac said in its release.