June 21, 2012 – Canadians are avid users of debit cards, credit cards and online payments, but our payment system needs reform to spur innovation, according to a report released today by the C.D. Howe Institute. In “Debit, Credit and Cell: Making Canada a Leader in the Way We Pay,” authors Philippe Bergevin and Todd Zywicki argue the country’s current payment technologies and governance infrastructure must change, or we will fall further behind the rest of the world. “We must remove barriers to competition and risk-taking,” said Philippe Bergevin, Senior Policy Analyst at the C.D. Howe Institute, “and encourage innovation to keep pace with the global economy.”
Canadians already have fewer options than consumers in other countries, note the authors. Cell phones with payment capabilities have been around for years in some countries, and are only starting now to make inroads in Canada. Cheques, which are relatively costly and slow to clear, are still widely used, with about one billion of them written annually. And Canadian debit cards lack features taken for granted in other parts of the world, such as the ability to use them for many online transactions and at stores located abroad.
The authors argue that the nation’s main debit network, the Interac Association, which operates as a cooperative under a Competition Bureau consent order, should be allowed to compete on a for-profit basis. Also, limits on the number of networks that can coexist on debit cards should be removed—such bans are detrimental to effective competition and innovation.
While the authors reject the idea of adding further layers of agencies tasked with regulating the payment system – as proposed by a recent federal task force – they do see a role for the federal government in guarding against systemic risks and ensuring appropriate levels of information and disclosure.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. It is Canada's trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. It is considered by many to be Canada's most influential think tank.
Click here for the full report.
For more information contact: Todd Zywicki, Academic Affiliate, International Center for Law and Economics and Professor of Law, George Mason University; or Philippe Bergevin, Senior Policy Analyst, C.D. Howe Institute, 416-865-1904; email: cdhowe@cdhowe.org.