Canadian Merchant Accounts

The Canadian merchant account marketplace is drastically different than in the US. The US has a multitude of competing merchant acquiring banks. In Canada merchant acquiring is controlled by a few banks. Competition is limited and there is little opportunity for outsiders to penetrate the market.

There are a handful of merchant banks in Canada. Scotiabank, TD Bank, Royal Bank, and CIBC. Bank of Montreal, First Data Loan Company and National Bank have tight control over the Canadian merchant account marketplace. In Canada, the few banks have divided the territory among themselves. Each bank has well established branch networks established through which to sell merchant services.

Global Payments is a associated with CIBC and National Bank. Paymentech has a relationship with Scotia Bank and First Data Loan Company. Moneris is owned by and processes for Royal Bank and the Bank of Montreal. TD Bank and First Data Loan Company have an alliance as well.

The Canadian processing system is different than in the US. Merchants need two banks, one for each of the major brand bank cards. A merchant cannot process transactions for one acquirer through another acquirers system as the banks do not cross settle.

The concept of Independent Sales Organizations (ISOs) which is a common distribution channel for US merchant acquiring banks does not exist in Canada. There are a few processors which act as quasi-ISOs for Canadian acquiring banks. However, for the most part they act as referral partners. They do not have any control over underwriting, risk management and portfolio ownership.

Canadian banks do not do not need ISOs. There is no reason for the banks to sponsor organizations that will compete with them and reduce their margins. In many ways, it's a moot point.

It is almost impossible for an ISO to compete with the firmly established Canadian banks. Additionally, the banks have a vast number of association agreements in place whereby they sell directly to merchants at rates only slightly above interchange. Any ISO would be locked out of those market segments.

Naturally, the banks and processors do not solicit ISOs or independent agents as in the US. Sometimes an ISO or independent agent has Canadian merchant business to place and approaches a Canadian bank or processor. The agent may be offered a small up-front commission or a miniscule part of back end processing residuals. Clearly there is no motivation for ISOs or independent agents to spend time and money selling into the Canadian market.

Depending on the type of merchant and average ticket size, interchange in Canada can be substantially lower then it is in the US. There reason is that there are far fewer interchange categories in Canada then there are in the US

Most terminals in Canada are owned by the banks. Debit is controlled by an association called Interac which is owned by the banks. All processing terminals must be certified with Interac. Canada joining the rest of the world in migrating to EMV over the next couple of years