Look behind the counter of almost any convenience store or supermarket and there they are those little computer terminals with the tiny slot and keyboard that allow you to whip through a piece of plastic and punch in numbers to settle a bill without a penny changing hands.
After a bit of fumbling and a few keystrokes, your bank account or credit card is instantly tapped for the amount you owe, and off you go with your pack of gum or cart of groceries or tank of gas.
For years, virtually all those direct payment terminals were lent to businesses by Canadian banks. They had the network. And they had the law behind them that basically made it impossible for anyone, including themselves, to charge more than a nominal transaction fee and directly profit from point-of-sale transactions.
Now, thanks to deregulation in the banking industry as well as cheaper, more widely available technology, a host of small, upstart companies have begun taking on what was once the exclusive domain of the Big Six. But beware: Their service can add as much as $2 or more per transaction.
"We saw that consumers wanted a choice and weren't getting one," says Michael Back, the 29-year-old founder and president of Toronto-based CollectivePOS, one of several new companies now competing with the banks to offer direct payment services. "Yes, there is a convenience cost associated with having that choice, but it is better than not having a choice at all."
Companies such as CollectivePOS are referred to in the business as independent sales organizations, or ISOs. Until recent years, entry into the direct payment market was not a door that was open and available to any company that wanted to delve into it.
There were rules and regulations that prevented private operators other than the banks from offering direct payment services. That changed in 1996, when the Competition Tribunal of the federal government forced the banks to open the Interac network, which they had built themselves to share services and transactions.
Before that, other players couldn't get into the ABM game because the rules prohibited them from collecting transaction fees, the only way they would be able to offset the costs of manufacturing and outfitting ABM's in the first place.
Once the government issued what was called a "consent order" eliminating the rule that prohibited surcharging, there was an influx of companies that had the technology to join Interac. And they did, a bevy of firms began piling into the ABM market, placing their machines side by side with regular bank-owned machines in public places such as variety stores, hotel lobbies and airports.
The order also opened the door to direct payment services, those little terminals you see behind the counter. But even then the technology and hardware weren't cheap enough or mainstream enough for anyone other than the banks to make a go of it.
Until now.
"It's all about innovation in the software," Back said. "The equipment has come down in price significantly, and processing costs have come down to a point where terminals of yesteryear did not have those capabilities, but the real magic is in the software."
Indeed, new technology and software has enabled companies such as CollectivePOS to provide a way for merchants to break away from the traditional never-ending costs of renting the equipment from the banks.
What's more, CollectivePOS and its competitors have developed software that allows merchants to provide cash back and other services to customers who want it, similar to what LCBO outlets across Ontario have been doing for some time.
But as more and more merchants find it easier, cheaper and more lucrative to offer debiting services for their customers by leasing or buying point of service terminals from companies beyond the Big Six, more and more consumers are finding the cost of purchasing something with their debit card increasingly expensive.
Just ask André Dubé. The 27-year-old opted to use his debit card recently at Depaneur Lalime in Montreal to pay for a few miscellaneous items he needed but didn't have the cash on hand for. Depaneur Lalime is one of hundreds of merchants that have purchased a CollectivePOS terminal.
The transaction went just fine. When the clerk tallied up his items, Dubé whipped out his Laurentian Bank debit card to pay. But what should have been a transaction totalling $14.57 ended up costing him $17.07 when all the various fees and service charges for using debit to pay and running a transaction through his bank account were added in.
"I guess I should have gone to the bank machine first," he said.
Currently, the only cost associated with using direct payment at most stores across Canada is the service charge your financial institution slaps on the transaction. Those that pay a flat rate every month that includes withdrawls and debit purchases typically don't pay anything. However, with the influx of a growing number of point-of-sale terminals comes additional fees for consumers that they may not be used to ? fees on top of the usual ones charged by the banks.
According to the Financial Consumer Agency of Canada, there are essentially three potential layers to service fees.
The first comes from your bank. What you pay depends on what kind of plan you have and who you bank with. In most cases the charges can range from zero up to 50 or 75 cents.
The second set of charges comes from Interac. They levy a fee every time you use their network. So if you go to a bank machine that is not from your home bank, you pay between $1.25 and $1.50, depending on which machine you use. It also works for debit transactions.
The third set is what's referred to as a convenience fee. That is what you pay if you use a non-bank ABM or a non-bank debit terminal. Those fees can range between $1.50 and $2 and are usually incorporated into the final price of the transaction, with the buyer's acknowledgement.
The proliferation of both ABMs and direct payment terminals in Canada has prompted some cause for concern among merchants and consumers alike.
From the consumer side, it means watching carefully for charges and fees that they might not otherwise be used to seeing when purchasing something with their debit card. Anyone who has been in the unfortunate position of being stuck taking cash from a privately operated ABM machine rather than one from their own bank knows the sting a $1.50 or $2 charge can make on a withdrawal.
Same goes for a direct-payment transaction, warns Sara Feldman, a spokesperson for Interac.
"Some of the most common complaints I get is that people were unaware of the additional fees," she says. "It is not good enough for a merchant to just stick up a sign saying there will be a surcharge. It has to be made clear in electronic form, and the consumers needs to be given an opportunity to opt out if they want to."
CollectivePOS and several of its competitors are also working on wireless terminals that would enable direct payment in taxis, restaurants and other locations, for a fee, of course.
Other players in the direct payment game include St. Catharines-based Tangarine Concepts Corp. and Surrey, B.C.-based Independent Bankcard Solutions Inc.
Canada's big banks aren't letting the smaller upstarts bowl them over. "We are working very aggressively in terms of maintaining an edge in the marketplace," said Jeff Keay, a spokesman for Toronto-based TD. "We have a merchant terminal business that is highly regarded and we have every intention of keeping it that way."
But the door to competition has swung wide open, and the battle is heating up. Industry observers predict it won't be long before Canada's retail market begins to look quite similar to the U.S., where ABM's and direct-debit terminals from hundreds of companies and financial institutions compete for merchant, and consumer, dollars.
And that, say retail experts, means more service charges for customers down the road. So what can consumer do about it? "
Just look carefully before you swipe," says Interac's Feldman. "It will always be buyer beware."
