Good afternoon.

My name is Balinder Ahluwalia. I'm the senior vice-president and group head of market development for Mastercard Canada. With me is Martin Leman, vice-president of strategy, pricing and interchange. He is bilingual and is available for any questions in French.

Given the scope of your study, let me begin by explaining who Mastercard is and what we do. We provide the network and the technology that allow billions of cardholders to use their Mastercard at millions of merchants around the world and to have that payment processed safely and securely in the blink of an eye.

We are a B-to-B operation. Our customers are the banks who issue cards and the acquiring banks who contract with merchants to process card payments. We do not have a direct relationship with cardholders. Therefore, questions about interest rates, consumer fees, terms and conditions or debt should be directed to the banks. It would be inappropriate for us to comment on those matters and illegal to provide direction on them.

What we do set are interchange rates, which is point (g) in your study. Interchange is a fee paid by the merchant's acquiring bank, often called the payment processor, to the cardholder's bank to compensate for the value and benefits of card acceptance. It is the distinctive feature of the four-party model consisting of banks, merchants, acquirers and consumers. Mastercard is the network in the middle, with consumers and banks on one side and merchants and acquirers on the other. We set interchange to maximize participation—for our banks to make cards available and for merchants to accept them. Our priority in setting rates is to maintain a balance.

Mastercard does not receive interchange revenue. Were it left to merchants, they would want the benefits of card acceptance without paying for it, but that would make card issuance unattractive to banks. Were it up to the banks, they would want high interchange to maximize revenue, but then merchants would not want to accept the cards.

Interchange rates have been on a downward trajectory in Canada for nearly a decade. Rates for small businesses are set to be lowered again in two weeks. Under a new agreement finalized last year, Mastercard is lowering its interchange for in-store transactions to an average of 95 basis points for qualifying small businesses—those with an annual Mastercard sales volume below $175,000. This captures 90% of credit card-accepting businesses in Canada and means that the average interchange on a $100 in-store transaction is 95¢. Small merchants will also receive a reduction of 10 basis points for online transactions, providing a savings of $1 billion over the next five years from the Mastercard network.

Since 2015 our rates have dropped by 24%. The previous reductions delivered over $2 billion of savings on Mastercard transactions alone, and with these latest reductions will provide a total savings of $3 billion for merchants. I would imagine that the savings from our main competitor would be similar, so this together would be consistent and significant.

There are two additional points to highlight. First, we understand the attention on fees for credit cards, but we must not lose sight of value. Merchants derive great value from credit card payments, including increased sales, guaranteed payment, access to the online marketplace, enormous efficiencies compared with cash or cheque and, at the most basic level, not having to run a store credit system.

Second, interchange represents a portion of credit card fees. Reducing interchange is an inefficient way to put money back into the pockets of small business. To help small businesses thrive, they need support in digitization, cyber-awareness, data insights and tools to action them. Insurance Bureau of Canada research tells us that 47% of businesses don't allocate any operating budget to cybersecurity, yet when they suffer a cyber-attack, it costs them nearly $100,000. That's why, with our latest reductions, Mastercard committed to providing free cybersecurity resources to all small businesses to safely expand their digital adoption and online presence while minimizing the risk of a cyber-attack. We've also prioritized partnerships and education that help small businesses increase their cyber-readiness.

We believe initiatives like this are more impactful than simply reducing interchange.

In conclusion, as our payment network evolves, we continue to support our critical stakeholders—banks and consumers on one side and acquiring banks and businesses on the other. Their success is our success, which is why we work so hard to find a balance in the system.

Thank you for your time. We look forward to any questions.