The Canadian federal government has published a proposed Addendum to the Code of Conduct for the Credit and Debit Card Industry in Canada (the “Code”) for public consultation, which would extend the Code to mobile payments. This announcement has been highly anticipated as it follows the federal government’s promise to review the application of the Code in connection with mobile payments, which it made concurrently with the release of the Task Force for the Payments System Review’s (the “Task Force”) final report in March 2012.
REGULATING THE PRACTISE RATHER THAN THE PLAYER
When the Code came into effect in August 2010, it was one of several measures that the federal government implemented that was designed to protect the interests of consumers and small businesses. In addition to federally-regulated financial institutions, the federal government decided to take aim at payment card networks, acquirers and processors. Some industry insiders were quick to note that the federal government’s activity was leading to an uneven approach whereby unregulated providers, such as PayPal and possible newcomer Google, were not and would not be subject to the same regulatory restrictions and oversight as their regulated counterparts even though they offered or could offer similar services to the public. The proposed expansion of the Code to encompass mobile payments highlights the argument that the actual business practises in the payments industry should be the primary drivers of any regulatory measures that are warranted. By focusing on certain types of card and payment products, the initial version of the Code overlooked a long anticipated development that could have been considered and incorporated at the outset. While expanding the types of products subject to the Code, it is noteworthy that the proposed Addendum still focuses on the same set of defined participants as under the Code, albeit while requesting comments on this limited focus. Accordingly, it remains to be seen what, if any, additional measures the federal government will take to refine its regulatory approach to payment cards and payment mechanisms, particularly in light of the call from the Task Force for a complete overhaul of Canada’s payments system.
PROPOSED ADDENDUM FOR MOBILE PAYMENTS
The Code currently applies to credit and debit card networks and their participants (e.g. card issuers and acquirers). It outlines payment card network operators’ responsibilities for providing information, flexibility and choice to merchants. According to the federal government, the intention of the Addendum is to ensure the Code’s principles of transparency, fairness and competition are maintained for payments through mobile devices.
The Addendum provides that references to “payment card” networks and network rules will be interpreted to include credit and debit payment applications (generally, anything that stores, processes or transmits credit or debit card data electronically, “payment apps”) that can be accessed by consumers using a mobile device at the point-of-sale. As a result of this interpretation in the Addendum, most existing policy elements would now apply to mobile payments without any changes required to the Code.
However, the Addendum proposes clarifying language for certain policy elements to make their application to mobile payments more apparent, as follows:
- Payment card network rules will ensure that merchants who accept credit or debit card payments from a particular network through a mobile device will not be obligated to accept all products available in that payment network’s mobile wallet.
- Competing domestic debit apps can be stored on, or accessed by the same mobile device, provided that they are represented as a separate payment app and consumers can select which payment app shall be used for a transaction.
- The principle of equal branding applies to all representations of payment apps (i.e. credit and debit) available on, or through, a mobile device.
- Payment card network rules shall ensure that consumers have full discretion to establish any default preferences for payment options. Establishing default preferences should be done by users based on a clear and transparent process and users should be able to easily change default settings.
- Credit and debit card functions shall not co-reside on the same payment app. Credit and debit payment apps can be stored on, or accessed by the same mobile device, provided that they are clearly separate payment apps.
The proposed Addendum is being circulated for a comment period, which ends November 17, 2012, and the government is seeking input on all aspects. However, comments are also specifically requested on the following questions:
- whether the Addendum should apply to other entities enabling mobile payments; and
- as it relates to the policy element relating to negative option acceptance, whether express consent should be required from merchants to accept debit or credit payment applications through a mobile device, where fees to merchants remain unchanged and no new infrastructure purchases are required.