Credit/Debit Code of Conduct Protects Merchants in Dispute with Visa Debit
UPDATE: CFIB's credit/debit card code of conduct working in Visa Debit launch
As you may have heard, CIBC launched a new Visa debit card on October 19. This card has both Interac and Visa debit features on it, but the two debit products do not compete. It does not look like it violates the Code of Conduct and offers two features to a CIBC ATM Card:
- Visa debit services can be used for international transactions (ie. Shopping in the US or overseas)
- Canadian businesses can offer Visa debit as an option for online purchasing. Right now, CIBC does not have any online debit product while the other banks currently offer Interac online.
CIBC will continue to offer only Interac for purchases made directly in Canadian small firms (again, other than for internet sales). Because the cost of Visa Debit is very high (about 1.5% of the entire transaction) we believe the take up of Visa debit for even for Internet sales will be very small. Due to our work on the Code of Conduct, if CIBC (or any bank) ever wanted to offer a full Visa debit card, it would have to issue separate cards and sell each merchant on the benefits and costs of their services. This is strong proof of the effectiveness of the code.
When CIBC released a new debit card that featured both Interac and new Visa Debit services, CFIB began asking some serious questions to ensure it was entirely compliant with the Code of Conduct. CIBC's new debit cards will use Interac for in-store purchases at Canadian merchants, but will use new Visa Debit services for international transactions and for online and mail order/telephone order purchases.
Unfortunately, most merchants who offer ecommerce or mail order/telephone order services would not be able to distinguish between a Visa Debit card and a Visa credit card. Under the Code of Conduct, merchants were assured that they would not be forced to accept new debit options if they accepted the same credit card brand. Visa's new debit offering did not meet the important obligation of allowing merchants the power to accept only those payment options they wish to offer.
Fortunately, CFIB stepped in to remind Visa of its obligations under the Code and we are pleased to report that Visa, together with CIBC, has stepped in to block all Visa Debit transactions unless a merchant has specifically requested such services.
We are also pleased to report that Visa has agreed to ensure all card processors (acquirers) receive explicit approval by merchants of their choice to offer Visa Debit. Some acquirers had sent "negative option" letters to merchants prior to the Code saying they would automatically agree to accept Visa Debit unless they contacted them to refuse. Of course, these letters were missed by most merchants. The Code specifically bans these "negative option" practices and Visa has agreed to ensure that all acquirers request advance permission from merchants regardless of whether a letter was sent before the Code was in place.
This is strong evidence that the Code is a powerful tool to protect merchants, but it requires the vigilance of CFIB to ensure it is properly enforced. Attached is CFIB's letter raising these concerns and responses from both CIBC and Visa Canada.