How the Payment Processing Industry in Canada is Halting Innovation(partners.styckyd.com)
partners.styckyd.com
How the Payment Processing Industry in Canada is Halting Innovation
http://partners.styckyd.com/partners/blogs/19-how-the-payment-processing-industry-in-canada-is-halting-innovation
7 comments
This is exactly what we have had to do, Sean. The company has been incorporated and I'm waiting to finish the paperwork with the bank so that the US company has a bank account and we can begin process payments.
I find it unfortunate that this is the case though. I used to believe that it was due to regulatory differences of Canada vs. the USA but I don't believe that's the case.
Again, I'm not an expert this is all just based on my experience but the regulations for opening an account in the US are far more detailed than they are in Canada. The issue in Canada just seems to be that there is not enough competition. The banks in control of the payment processing industry are really large institutions, they're not hungry to gain ground by looking for new ways to do business.
I find it unfortunate that this is the case though. I used to believe that it was due to regulatory differences of Canada vs. the USA but I don't believe that's the case.
Again, I'm not an expert this is all just based on my experience but the regulations for opening an account in the US are far more detailed than they are in Canada. The issue in Canada just seems to be that there is not enough competition. The banks in control of the payment processing industry are really large institutions, they're not hungry to gain ground by looking for new ways to do business.
With PostageApp, we've been shopping around for a better processor. Our current one has a frighteningly bad API, and won't let us accept anything in USD, as you've mentioned.
Really makes me wonder if there's anything we can do up here. All of the Canadian startups that need to use a payment processor are suffering because of this.
Really makes me wonder if there's anything we can do up here. All of the Canadian startups that need to use a payment processor are suffering because of this.
It cuts both ways. In the past, the smaller number of Canadian banks made it easier for them to push common payment projects, albeit ones that don't challenge their business model.
For example, debit cards were in common use in Canada at least ten years before they started to appear in the US. I would visit the US in the late 90s, and it always struck me as anachronistic how many people were still paying for everyday purchases with checks. I doubt any Canadian store has accepted personal checks in more than a decade. It hasn't been until recently that Americans seemed to catch up with Canada in debit card use.
For example, debit cards were in common use in Canada at least ten years before they started to appear in the US. I would visit the US in the late 90s, and it always struck me as anachronistic how many people were still paying for everyday purchases with checks. I doubt any Canadian store has accepted personal checks in more than a decade. It hasn't been until recently that Americans seemed to catch up with Canada in debit card use.
10 years ahead on debit cards, 70 years ahead on medical coverage.
Hey all - this is definitely a huge issue for forward thinking tech/payment start-ups.
I work with a lot of tech start-ups to help them get around these issues. I know the acquiring side pretty well, and would love to chat with anyone who is interested in doing the aggregator model. So far, I've helped a few people find workarounds to avoid aggregator status, and if that isn't possible, I might be able to help you on the way to becoming an aggregator. Give me a yell! alex (at) coremerchant (dot) com .
Happy to offer advice and help you brain-storm free of charge. Cheers!
I work with a lot of tech start-ups to help them get around these issues. I know the acquiring side pretty well, and would love to chat with anyone who is interested in doing the aggregator model. So far, I've helped a few people find workarounds to avoid aggregator status, and if that isn't possible, I might be able to help you on the way to becoming an aggregator. Give me a yell! alex (at) coremerchant (dot) com .
Happy to offer advice and help you brain-storm free of charge. Cheers!
@Kareem, that is the most ignorant post on this topic. You clearly have no clue about what you're talking about. Payfirma's app is 2 pages and the merchant owns the account. Square is like Paypal, they aggregate on the merchant's behalf meaning they hold your funds and can cut the merchant off anytime.
Please, no personal attacks. Rather than bashing a person, respectfully show them why they are wrong.
Also, you may not have seen that under each person's comment is a small 'reply' button. Click on that to start a reply to someone - it's better than @username for organising the discussion.
Also, you may not have seen that under each person's comment is a small 'reply' button. Click on that to start a reply to someone - it's better than @username for organising the discussion.
I think in general, between my experience in the United States and this article about Canada, it's clear that banks are against technological innovation across the board because they are absolutely terrified of being disintermediated completely. And rightly so. The ends of retail banking and plastic cards as we know them are perhaps a few years off (see http://www.aarongreenspan.com/writing/essay.html?id=48), and they will do anything they can to stall that day from arriving.
What bitcoin has shown to me, is how simple moving money around could (and should) be. Something similar could cause real distruption to the banking industry. The current system is pain in the ass.
It showed me that we still need banks. Even though bitcoin has no banks, people used the wallet sites as essentially a bank.
One of the other reasons the banking industry doesn't see much innovation is that it needs to be very secure (which is why it's a pain in the ass) and so it's going to take some time to adopt new technologies.
One of the other reasons the banking industry doesn't see much innovation is that it needs to be very secure (which is why it's a pain in the ass) and so it's going to take some time to adopt new technologies.
That is exactly what I hoped would happen with bitcoins. The day we remove that barrier to innovation is the day a lot more startups will be created.
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For decades heavy regulation of the banking industry has kept out competitors, cementing the advantages of the biggest banks. But it has also held them back from basic innovations that should be ubiquitous in the 21st century. Every bank should natively support the same features as PayPal, and more.
That situation is not tenable, eventually more and more banking will migrate to "non-bank" entities who aren't stuck in the mire of traditional banking and banking regulations.
That situation is not tenable, eventually more and more banking will migrate to "non-bank" entities who aren't stuck in the mire of traditional banking and banking regulations.
I'm in Canada, and all the major banks have online services. Several have iPhone apps. A recent service lets you email money to someone for a 50 cent fee.
Regulation has NOT stifled technical innovation in banking in Canada. It did, however, prevent the banks from getting in up to their necks in the CDO/CDS/real estate boondoggle. I think I like that.
The article laments that there are not thousands of banks like in the US. No thanks. How many of those banks went out of business in the last few years? No thanks. Having a small number of very well regulated, and actually fiscally conservative banks sounds to me like a fair trade for whatever it is having thousands of poorly regulated banks gets you that is so awesome its worth risking a major financial meltdown.
Regulation has NOT stifled technical innovation in banking in Canada. It did, however, prevent the banks from getting in up to their necks in the CDO/CDS/real estate boondoggle. I think I like that.
The article laments that there are not thousands of banks like in the US. No thanks. How many of those banks went out of business in the last few years? No thanks. Having a small number of very well regulated, and actually fiscally conservative banks sounds to me like a fair trade for whatever it is having thousands of poorly regulated banks gets you that is so awesome its worth risking a major financial meltdown.
I'm a US citizen living in Canada.
In my experience, your sentiment is common amongst Canadians.
The thinking usually goes "Our banks might not be convienient, but at least they won't fail like the ones in the US".
My understanding of the mortgage crisis, however, is that most of the problems were with large banks, not small ones.
I can tell you that small US banks an credit unions offer substantially better service at better terms than Canadian banks do.
In Ontario, for example, there's only 1 bank that offers $0 checking accounts without absurdly low transaction limits (like 1 transaction per month). That bank doesn't have branches, and offers almost no services.
It's absurd if you think about it. "You want me to pay you a fee for the privilege of loaning you money."
The only way that kind of business can be sustained is through negative externalities.
No fee bank accounts are standard practice in the US, precisely because there are many banks to choose from. Choice drives competition.
Regulation of big banks may have prevented a banking crash, but I think it's a mistake to extrapolate from that notion to "many small banks are bad", because that was not the problem in the us...
The thinking usually goes "Our banks might not be convienient, but at least they won't fail like the ones in the US".
My understanding of the mortgage crisis, however, is that most of the problems were with large banks, not small ones.
I can tell you that small US banks an credit unions offer substantially better service at better terms than Canadian banks do.
In Ontario, for example, there's only 1 bank that offers $0 checking accounts without absurdly low transaction limits (like 1 transaction per month). That bank doesn't have branches, and offers almost no services.
It's absurd if you think about it. "You want me to pay you a fee for the privilege of loaning you money."
The only way that kind of business can be sustained is through negative externalities.
No fee bank accounts are standard practice in the US, precisely because there are many banks to choose from. Choice drives competition.
Regulation of big banks may have prevented a banking crash, but I think it's a mistake to extrapolate from that notion to "many small banks are bad", because that was not the problem in the us...
As an aside, both PCF and ING have de facto chequing accounts (what exactly makes a chequing account chequing anyway?) with no fees.
No fee bank accounts are gradually going away in the U.S. to significant chagrin.
No fee bank accounts are gradually going away in the U.S. to significant chagrin.
"Our banks might not be convienient"
I don't think that at all. I was responding to negative claims about technical innovations, and those are present in Canadian banks in one form or another.
The bank you are speaking of is probably PC? You can use any CIBC ATM for PC banking, and its banking reps are in Loblaws stores, so while it has no branches per se it's not as bad as you make it sound.
There are credit unions here as well. There are options, but I'll admit the big 5 have quite a lot of the attention. I have heard that many small banks in the US are lacking in several service features, I don't imagine it's a rosy awesome world in the US.
I don't pay monthly fees, and I pay maybe $5 in bank fees a year total.
I don't think that at all. I was responding to negative claims about technical innovations, and those are present in Canadian banks in one form or another.
The bank you are speaking of is probably PC? You can use any CIBC ATM for PC banking, and its banking reps are in Loblaws stores, so while it has no branches per se it's not as bad as you make it sound.
There are credit unions here as well. There are options, but I'll admit the big 5 have quite a lot of the attention. I have heard that many small banks in the US are lacking in several service features, I don't imagine it's a rosy awesome world in the US.
I don't pay monthly fees, and I pay maybe $5 in bank fees a year total.
I use PC too...They don't do so well with some things, like bank drafts, particularly in USD. You have go through a CIBC branch, both banks charge a free (even though PC is run by CIBC), and you have to deal with 2 bureaucracies.
I admit, compared to other Canadian banks, PC is not bad. In the US though, you don't have to choose between branches and no fees....
Also, it's worth keeping in mind that if you keep a balance (to avoid fees) you are still paying a fee. One part is loss due to inflation (any interest rate below inflation is a negative return), and the other is opportunity cost....
I admit, compared to other Canadian banks, PC is not bad. In the US though, you don't have to choose between branches and no fees....
Also, it's worth keeping in mind that if you keep a balance (to avoid fees) you are still paying a fee. One part is loss due to inflation (any interest rate below inflation is a negative return), and the other is opportunity cost....
Canadian banks all managed to lose billions on US subprime. Conservative they were not.
It is true that a handful of regulations kept Canadian banks out of truly severe trouble in spite of themselves - mortgage insurance, capital requirements, federal gov't guarantees through CMHC - but none of these regulations have anything whatsoever to do with the number of Canadian banks or the amount of competition in the Canadian banking industry.
When I moved to the United States I was astounded by the lower fees and better service here - and banks down here aren't particularly known for their low fees or good service. The Canadian public's "at least we're not America" nationalism is being used to rip you off.
It is true that a handful of regulations kept Canadian banks out of truly severe trouble in spite of themselves - mortgage insurance, capital requirements, federal gov't guarantees through CMHC - but none of these regulations have anything whatsoever to do with the number of Canadian banks or the amount of competition in the Canadian banking industry.
When I moved to the United States I was astounded by the lower fees and better service here - and banks down here aren't particularly known for their low fees or good service. The Canadian public's "at least we're not America" nationalism is being used to rip you off.
Technically not all - Toronto-Dominion (TD) dumped all subprime in 2005 and weathered the storm considerably better than the rest of the big 5. Much kudos was given to Edmund Clark at the time for driving a fundamental change based on his view that "I don't think you should do something you don't understand, hoping there's somebody at the bottom of the organization who does."
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a...
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a...
US bank losses due to subprime is about $1 TRillion, vs $2 Billion in Canada among the big 5. That's a factor of 500. That, and Canadian bank stocks bounced right back to their pre-crisis levels afterwards. I think Canadian banks managed to dodge the crisis quite well.
I don't pay monthly fees, and I pay maybe $5 in bank fees a year total.
http://thebankwatch.com/2007/11/17/canadian-banks-write-of-2...
I don't pay monthly fees, and I pay maybe $5 in bank fees a year total.
http://thebankwatch.com/2007/11/17/canadian-banks-write-of-2...
>Every bank should natively support the same features as PayPal, and more.
We have different services, though. Interac Email transfers are fantastic: Just send an email to someone, they click a link in it, and money is deposited instantly in the account of their choice. It's brilliant.
I agree that competition is sorely lacking here, but it's not like we're being kept in a backwards tech ghetto.
We have different services, though. Interac Email transfers are fantastic: Just send an email to someone, they click a link in it, and money is deposited instantly in the account of their choice. It's brilliant.
I agree that competition is sorely lacking here, but it's not like we're being kept in a backwards tech ghetto.
Most industries in Canada are protected against innovation and competition by a series of public cartels and legislated monopolies that have been erected over decades. Telecom, Banking, Tobacco, Grain, Lumber... and at the provincial level Energy and Alcohol are all carefully protected. Essentially the entire country is a giant syndicate under the guise of free trade.
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Don't forget Canada Poste.
E-commerce is significantly stunted in Canada due largely to excessive government protection of monopolies.
E-commerce is significantly stunted in Canada due largely to excessive government protection of monopolies.
there's a Square clone in Canada already -- http://www.payfirma.com/solutions/mobile_solutions/iphone_mo...
With square, you are not setting up your own merchant account you just go and signup on squareup.com and get the reader on your phone.
Payfirma you still have to talk to someone and get an account signed up, pay monthly fees, setup fees.
Payfirma you still have to talk to someone and get an account signed up, pay monthly fees, setup fees.
They're a clone in the sense that they provide a device to let you take payments with your iPhone / iPad.
They're so far off from Square in terms of customer experience, though: their signup process involves a 10+ page online application and they require that you obtain a merchant account to take payments are amongst the opportunities for growth at Payfirma.
They're so far off from Square in terms of customer experience, though: their signup process involves a 10+ page online application and they require that you obtain a merchant account to take payments are amongst the opportunities for growth at Payfirma.
The best option for Canadian based companies is to incorporate a child LLC in the US to use US based payment providers. Between Stripe, Braintree, and FeeFighters you'll be very happy.
You'll definitely want to check with tax experts before doing this.