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Canadian Card Code of Conduct Conundrum

Implications for mobile payments

The Code of Conduct for the Credit and Debit Card Industry in Canada came into effect in mid-August, 2010. One of the key provisions of the Code, articulated in Policy Element 6, is that “Competing domestic applications from different networks shall not be offered on the same debit card”. Given that Canadian bank cards that currently have Interac’s ubiquitous Interac Direct Payment functionality predominate, it in effect prevents scheme debit applications (MasterCard and Visa debit) from “riding on the Interac rails”. While it would be easy to assume that the term ‘card’, which is not defined in the Code, would refer only to the traditional plastic card (magstripe or chip) that allows debit payments to be effected at a point-of-sale (physical or virtual), there is some confusion as to whether this could also apply to debit applications on mobile phones. In essence, it raises the question as to whether the mobile phone is a card or a wallet. Deeming a mobile phone to be a card would imply that the Code of Conduct also applies to debit payment applications on mobile devices. This would, in turn, prevent any competing debit payment applications from residing on the same phone, similar, for example, to preventing a consumer from having multiple debit cards in their wallet.

At first blush, it would seem absurd to deem that a mobile phone is a card, much as it would be absurd to deem a computer to be a word processor. Mobile phones, especially in the smartphone era, are multi-functional devices capable of executing many different types of applications and functions, from voice communications, to e-mail, to web access, to games, to music, and more recently, to payments. Payment cards, by contrast, are far simpler, and while they may support a number of applications, these are usually focused on payments and cash withdrawal, or some combination of payments/cash withdrawal and loyalty/rewards.

So, where the does the confusion originate? Clearly, there are strong divisions in the Canadian payments industry, and vested interests on different sides of the payments ecosystem could be either advantaged or disadvantaged depending on whether the mobile phone is, for regulatory or legislative purposes, deemed to be a wallet or a card. Lobbying has been aggressive and stentorian. The ‘phone is a card’ lobby appear to have the upper hand. The Payment Card Networks Act makes provision for the phone to be deemed a card, although it does not go so far as to actually specify it as such. It defines a payment card as follows:

“payment card” means a credit or debit card — or any other prescribed device — used to access a credit or debit account on terms specified by the issuer. It does not include a credit card issued for use only with the merchants identified on the card.

The addition of the qualifier “or any other prescribed device” opens the door for regulators to deem any device used for debit or credit payments, including mobile phones, to be a card.

The implications of this for mobile debit payments are significant. Consumers would be unwilling to have multiple phones simply to be able to use different domestic debit payment applications on their phones. It would force selection of one scheme over another, and hence limit consumer choice at a transactional level. The first debit payment application on the mobile phone would have an advantage over others because it would have to be deleted in order to install a competing application. It would reduce competition in the domestic debit payments space, and it would almost certainly lead to a lower adoption rate. Enforcement would be impossible. Furthermore, it would by no means represent technologically neutral regulation. It would be difficult to uncover a grain of sanity in such a decision, should it ever be made.