The Bankwatch

Tracking the consumer evolution of financial services

Government of Canada introduces payments code of conduct addendum that anticipates smart phone apps, but potentially at the cost of less product innovation

The Government of Canada is being quite proactive in consideration of payment regulation.  The code of conduct released in 2010 has been overtaken by introduction of apps that incorporate payments into smart phones, and the government have issued this addendum in that light.  However the approach risks being to product centric versus focussing on their mandate which is consumer protection.


The Code of Conduct for the Credit and Debit Card Industry in Canada (the Code) came into effect in August 2010 and covers several methods for making payments, including point-of-sale, internet and telephone. The Code does not explicitly address mobile payments transactions.

One situation in particular is dealt with in Element 8 but also seems to apply broadly throughout, requires that debit and credit cannot reside on the same card.  The addendum recognises this makes no sense for smart phones with a debit app and a credit app on the same device, albeit separate apps.  Protection is provided in the addendum to ensure consumers are still able to make choices about what they accept and what they pay for, notwithstanding the apps are on the same device.

However the original intent to keep debit and credit separate is unclear.  The original code of conduct, Element 8 states (emphasis mine);

8.  Payment card network rules will ensure that debit and credit card functions shall not co-reside on the same payment card.

Debit and credit cards have very distinct characteristics, such as providing access to a deposit account or a credit card account.  These accounts have specific provisions and fees attached to them.  Given the specific features associated with debit and credit cards, and their corresponding accounts, such cards shall be issued as separate payment cards.  Consumer confusion would be minimized by not allowing debit and credit card functions to co-reside on the same payment card.

The government in their well intentioned regulation seem to have decided that consumer confusion could never be eliminated by innovation, and therefore have eliminated the opportunity for that innovation by insisting on separate cards.

Fast forward to Sept 2012 and the addendum says its ok for debit and credit to co-exist on a smart phone provided they are separate apps.

I say what is the difference between a smart phone and a smart card?  In theory there is no difference when we remove the constraints of current design.  The chip on a smart card is pretty dumb but that is todays design and given the current rules no-one has been allowed to consider alternatives either on the card or on the acquirer device that would mitigate confusion.  This is a slippery regulatory slope.

Relevance to Bankwatch:

While this addendum is released with the best of intentions, it strikes me as being mightily detailed in describing apps that broadly do not yet exist.  In fact by trying to address a problem in the original code it further confounds the confusion by layering on more regulation, ie, “in the case of smart phones …”.  As it turns out this might be an improvement but for all the wrong reasons.

One of the problems with regulation, especially since 2008 and monstrous tomes such as Dodd-Frank is that they are so detailed and specific to address known problems that by their very nature they are bound to miss the next problem that has not been yet experienced.

I have written much about regulation and what I believe to be appropriate here.  Regulation should be designed to control the design and actions of bank organisations who provide basic banking services.  Regulation should not be so low level as essentially providing product design, and I fear these well intentioned payments regulations are dangerously close to being just that, and this addendum designed to address mobile proves that regulation needs to get back to its roots and out of product design.

Written by Colin Henderson

September 23, 2012 at 23:04

Posted in Uncategorized

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