Canada's Credit Card Industry Profits Plunge

Some begin to exit Canada's credit card business, while others look toward new systems, such as mobile phone payments.

April 27, 2010

TORONTO - A new report by Deloitte suggests that Canada??s credit card industry has experienced a significant drop in profitability, in part due to the government??s new code of conduct, the Toronto Star reports.

As a result, some companies are planning to exit Canada??s credit card business while others are looking toward new systems, such as mobile phone payment.

Canada??s credit card industry has been hit by rising consumer bankruptcies and increased regulation, a perfect storm, according to Deloitte Canada.

"The industry is at a turning point," said Pat Daley, leader of Deloitte Canada??s payment practice.

The report comes just a week after Canada??s Minister of Finance James Flaherty launched a voluntary code of conduct, which gives merchants and businesses more bargaining power over the fees they pay to accept credit cards. It has also made it more difficult for Visa and MasterCard to enter Canada??s debit market.

The industry was given 30 days to provide a response as to whether it will comply with the new rules and 90 days to align its business plans with the provisions.

"In response to existing and emerging market forces, credit card issuers are considering a number of options, from redefining their business and operating models to exiting the business altogether," Daley said.

Daley refused to release details of the credit card industry??s profitability rates, saying that those details are proprietary.

Daley predicted that the new restrictions apply only to cards and not phones or other payment forms, and as such, more companies may begin to offer these mobile payment services.

The Retail Council of Canada said that it has already seen signs that credit card companies are looking for ways to expand and offer products that are more profitable. Scotiabank??s Momentum Visa card is targeting the grocery and gas market ?" where debit is the most popular payment form ?" by offering cardholders higher rewards when the card is used.

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