banks can now offer multiple credit card brands

Canada's competition watchdog says banks can now issue more than one brand of credit card, a move it says will increase choice for consumers.

But Canada's retailers say they fear it will mean even higher costs for them to handle the cards.

Previously, banks were allowed to issue only one brand of card. In practise, most major Canadian banks chose to issue Visa cards, while a smaller number offer MasterCard.

"By allowing banks to issue multiple credit cards, consumers will benefit from increased choice and better service," the federal Competition Bureau said in a letter posted on its Web site last night.

The Retail Council of Canada said today that it fears the credit card companies will use the new rules to raise the fees they charge merchants to accept their cards.

In order to get banks to offer their cards, they will offer the banks higher rates, which will then be passed on to merchants, said spokesperson Peter Woolford.

"What the bureau has not taken into account is the cost of competing offers will be loaded most likely on to the merchant," Woolford said.

The number two player in the credit card market, MasterCard Canada, said the fees are just one small part of the way card companies compete for the bank's business.

"I challenge that. Interchange fees are a small part of the overall picture," said MasterCard Canada president Kevin Stanton.

Canada was the only country that still operated what's called a "non-dual market," Stanton said.

More choice will mean more innovation in the marketplace, he added. For example, Visa cardholders can't currently use their cards at Tim Horton's Ltd., because the coffee chain accepts only MasterCard, he said.

Visa Canada, which leads the market, said it's confident it can compete in a dual market, noting it is the most recognized financial services brand in the world.

"The experience in other countries has shown that it results in a competitive marketplace that leads to an increase in the variety of products and services available to personal and business cardholders."

Visa said it adjusted its own regulations back in 2002 in anticipation of the change in marketplace rules.

The old rules reflected the former ownership structure of the two major card companies, the competition bureau said. Visa and MasterCard used to be associations owned by their members. The members were the issuers, usually banks, and acquirers, usually card processing companies that sign up the merchant.

The rules restricting issuers and acquirers to one brand of card were created to prevent them from belonging to both associations and potentially influencing the rates and rules, thus lessening competition, the bureau explained.

The bureau said it would still intervene in cases where either the issuers or acquirers moved to lessen competition between the various credit card brands - for example, if a leading supplier of payment systems networks induced banks to deal just with that supplier, or where the members of that network could influence the actions of the credit card companies.

Source: Toronto Star