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How the Payment Processing Industry in Canada is Halting Innovation

41 points by kerryfalk 15y ago

seanmccann 15y ago
Processing credit cards in Canada can be a nightmare compared to options for US companies. The fees are much higher, account setup can be complicated, the APIs are brutal, and there are crazy limitations like Canadian companies not being able to process AmEx in US dollars. 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.
- kerryfalk 15y ago
  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.
- JonLim 15y ago
  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.
plam 15y ago
there's a Square clone in Canada already -- http://www.payfirma.com/solutions/mobile_solutions/iphone_mobile_payment-app http://www.payfirma.com/solutions/mobile_solutions/iphone_mo...
- simonk 15y ago
  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.
- kareemm 15y ago
  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.
thinkcomp 15y ago
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 http://www.aarongreenspan.com/writing/essay.html?id=48), and they will do anything they can to stall that day from arriving.
- wavephorm 15y ago
  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.
  - InclinedPlane 15y ago
    Don't forget Canada Poste. E-commerce is significantly stunted in Canada due largely to excessive government protection of monopolies.
  - deleted 15y ago
    [deleted]
  - a3camero 15y ago
    And those are just the obvious ones. Ontario's bus industry is a regulated near-duopoly of routes. In order to start a new bus route you have to prove that it won't have a negative economic impact on the current operators of that line. It's regulated by the Ontario Highway Transport Board. Same as it was in the 1950s... Just one of many less visible examples.
- jerguismi 15y ago
  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.
gamble 15y ago
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.
- suking 15y ago
  10 years ahead on debit cards, 70 years ahead on medical coverage.
alexlinebrink 15y ago
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!
Sniffnoy 15y ago
Links in post are broken due to bad quotes.
- kerryfalk 15y ago
  Thanks. Rookie mistake. Fixed.
fitzandsullivan 15y ago
@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.
- chad_oliver 15y ago
  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.

41 points by kerryfalk 15y ago

Processing credit cards in Canada can be a nightmare compared to options for US companies. The fees are much higher, account setup can be complicated, the APIs are brutal, and there are crazy limitations like Canadian companies not being able to process AmEx in US dollars. 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.

kerryfalk 15y ago
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.
JonLim 15y ago
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.

plam 15y ago

there's a Square clone in Canada already -- http://www.payfirma.com/solutions/mobile_solutions/iphone_mobile_payment-app http://www.payfirma.com/solutions/mobile_solutions/iphone_mo...

simonk 15y ago
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.
kareemm 15y ago
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.

thinkcomp 15y ago

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 http://www.aarongreenspan.com/writing/essay.html?id=48), and they will do anything they can to stall that day from arriving.

wavephorm 15y ago
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.
- InclinedPlane 15y ago
  Don't forget Canada Poste. E-commerce is significantly stunted in Canada due largely to excessive government protection of monopolies.
- deleted 15y ago
  [deleted]
- a3camero 15y ago
  And those are just the obvious ones. Ontario's bus industry is a regulated near-duopoly of routes. In order to start a new bus route you have to prove that it won't have a negative economic impact on the current operators of that line. It's regulated by the Ontario Highway Transport Board. Same as it was in the 1950s... Just one of many less visible examples.
jerguismi 15y ago
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.

gamble 15y ago

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.

suking 15y ago
10 years ahead on debit cards, 70 years ahead on medical coverage.

alexlinebrink 15y ago

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!

Sniffnoy 15y ago

Links in post are broken due to bad quotes.

kerryfalk 15y ago
Thanks. Rookie mistake. Fixed.

fitzandsullivan 15y ago

@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.

chad_oliver 15y ago
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.