Nov 8, 2010 (updated)

First Canadian Visa debit launch hits controversy

CIBC has become the first bank in Canada to launch a Visa-branded debit card. The CIBC Advantage card, which is co-branded as Interac and Visa, is already available in CIBC bank branches, Mike Bradley, Visa Canada`s head of products, tells Payments Business. However, the launch of the card has stirred controversy, as according to the Toronto Star, some big Canadian merchants have been processing it as a Visa credit card.

Within Canada, for domestic point-of-sale transactions, the EMV chip-and-PIN based card will be processed over Interac’s network, Bradley says. “For point-of-sale transactions outside Canada, and for domestic and international telephone, Internet and mail-order purchases, the card will be processed over Visa’s network,” he says.

“The Canadian cards industry code of conduct dictates that a Visa Debit or Maestro Debit card in Canada has to go over Interac for point-of-sale transactions,” Allen Wright, senior vice president of products and services management at Interac Association,  tells Payments Business.

In a contest lasting until February 2011, CIBC is offering cardholders who shop with the CIBC Advantage Card, the chance to win a prize of 1 million Aeroplan Miles, or one of two prizes of 50,000 Aeroplan Miles. The only criterion for being automatically entered into this competition is that the card must be used to make a purchase over the Visa network, either at the point-of-sale outside Canada, or via telephone, Internet or mail-order.

The new card functions just like a standard CIBC debit card, for example offering log-on access to online and mobile CIBC banking. According to a statement, CIBC will automatically issue its debit cardholders with the CIBC Advantage card as their previous Interac-only debit card expires.

Cardholders using the new card for Visa purchases benefit from Visa’s guarantees and protection measures: the Visa Zero Liability Policy, which guarantees full reimbursement of fraudulent transactions;  the Visa E-Promise, which provides protection when using a Visa card to shop online, by mail, or by phone if the cardholder has tried unsuccessfully to resolve a dispute directly with the merchant; the three-digit code (CVV2)  on the back of the card; and the Verified by Visa password-based online authentication system.

“The launch of Canada’s first Visa debit card is very significant both for consumers and for merchants,” Bradley says. “Firstly, Canadian consumers will benefit as they now have more choice. They can now use their debit card to make purchases on channels where they previously couldn’t use debit, for example ordering flowers or pizzas over the phone, or making purchases on an e-commerce website. Also you can use Visa debit card anywhere in the world where Visa is accepted, a feature which ill be very popular with Canadians who go to the US to shop.”

Bradley says online and telephone merchants in Canada will benefit, as they will receive new customers who previously who had been deterred from purchases due to having to use credit cards. “We think there are a lot of people who will feel more comfortable using a Visa debit card for a Visa transaction on a website than their Visa credit card,” he says.  “So Visa debit cards will also give merchants more payment options.”

Visa Canada has published its official interchange rates for Visa Debit and for Visa Credit on its website. 

“The interchange for Visa Debit is less than for Visa Credit,” Bradley says.

The Toronto Star reports that, despite Visa Canada signing up to the Cards Code of Conduct, some purchases made at the point of sale in Canadian retailers with the cards are being incorrectly routed over the Visa network instead of over Interac. The newspaper quotes Visa as saying that some merchants have been charged incorrect processing fees, and that these fees so far amount to only a few hundred dollars. Visa has promised to reimburse retailers for these fees and to fix the problem that caused the incorrect processing, the Toronto Star says.

“Visa and CIBC should have anticipated this happening and got in front of the issue with merchants by saying to them that it could happen inadvertently and that they would take care of it,” Rob Burbach, a Toronto-based Senior Analyst at IDC Financial Insights says. “They should have had monitoring on the back end of card transactions to trap these incorrect transactions before they made it into the merchants’ bills. The result is another PR problem for VISA and the banks , and another round lost in the war with merchants -- who clearly control the payments agenda with the Canadian government at this point.”

Burbach comments that, overall, the Visa/MasterCard strategy is to isolate Interac to the POS terminal transaction in Canada, while controlling Internet-based retailer transactions, which are rising quickly and have up to this point been done mainly through Visa- or MasterCard-branded credit cards “Interac has to get retailer buy-in to offering its Interac Online payment system on their websites one retailer at a time,” Burbach says. “Clearly, Interac has more limited resources to do so in the short term than Visa and MasterCard."






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