EXHIBIT 3 Part 2 - Payment Card Settlement [PDF]

Aug 16, 2013 - Source: Company reports, US Bureau of Economic Analysis, US Census, J.P.Morgan Economic & Policy Rese

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Idea Transcript


Case 1:05-md-01720-JG-JO Document 5939-4 Filed 08/16/13 Page 1 of 401 PageID #: 69096

EXHIBIT 3 Part 2

Case 1:05-md-01720-JG-JO Document 5939-4 Filed 08/16/13 Page 2 of 401 PageID #: 69097

Exhibit M

Case 1:05-md-01720-JG-JO Document 5939-4 Filed 08/16/13 Page 3 of 401 PageID #: 69098

COMPETITION TRIBUNAL TRIBUNAL DE LA CONCURRENCE

RECEIVED / REÇU April 27, 2012 REGISTRAR / REGISTRAIRE Document #234 OTTAWA, ONT. by / par Jos LaRose

Case 1:05-md-01720-JG-JO Document 5939-4 Filed 08/16/13 Page 4 of 401 PageID #: 69099 PUBLIC

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1.

I am the Senior Director, International Payments with Wai-Mart Stores, Inc.

CWalmart''), a position I have held since January 31, 2011.

2.

Walmart is engaged In the operation of retail stores of various formats, either

directly or through subsidiaries, In a number of jurisdictions around the wortd, including the United States, Canada, Argentina, Puerto Rico, Brazil, Japan, the United Kingdom, Chile, Mexico, fJVe countries in Central America and fourteen countries in southern Africa. In addition, Walmart is a participant in joint ventures that operate retail stores in India and China. Further Information regarding Walmart's operations is found in the 2011 Annual Report of Walmart attached to this witness statement as Exhibit "A".

3.

In Canada, Walmart operates through its wholly-owned subsidiary, Wai-Mart

Canada Corp. ('Walmart Canada"), headquartered in Mississauga, Ontario. Walmart Canada's operations are described in further detail below. Background

4.

As Senior Director, International Payments, I support Walmart's operations

relating to the acceptance of credit cards and other payment cards at retail locations in each of the 29 countries outside the United States in which Walmart currently operates, including Canada.

5.

I have over 10 years of experience in the retail sector, the majority of which Is

specifically focused on credit card and other payment card operations. 6.

Prior to joining Walmart, I was employed as the Director of International and

Interchange Financial Services by The Home Depot, Inc. ("Home Depot''). In this capacity, I was responsible for the credit card operations of Home Depot, Including private label credit card programs and entering Into agreements with Acquirers with respect to the supply of credit card network services to Home Depot in Canada, Mexico and China.

Case 1:05-md-01720-JG-JO Document 5939-4 Filed 08/16/13 Page 5 of 401 PageID #: 69100 PUBLIC

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7.

Prior to joining Home Depot, I spent over 10 years

working in various roles in the

credit card side of the banking sector, including positions at First USA (now JP Morgan Chase), Mebis Companies (now HSBC) and Juniper Banks (now Barclay Card).

8.

Since joining Walmart in January 2011, I have personally supported Walmart

Canada's operations relating to the acceptance of credit cards, Including negotiating agreements between Walmart Canada and Acquirers governing the supply of credit card networ1< services to Walmart Canada.

Operations of Walm~~rt Canada

9.

Walmart Canada was estabUshed in 1994 through- the acquisition of 122

'Woolco" stores of Woolworth Canada. Walmart Canada now operates 333 stores in Canada, located in each of the ten provinces and In two territories, employing over 85,000 Canadians.

10.

Waimart Canada operates in Canada through three principal retail formats: (a)

169 discount stores operating under the 'Walmarf' or 'Wai-Mart'' banners that carry close to 80,000 different products, ranging from apparel and home decor to electronics; (b) 164 Walmart Supercentres that carry the broadest range of products and services, including mass merchandise, grocery items and phannaceutical products, as well as speciality services, such as garden centres, tire and tube express auto centres and vision centres; and, (c) online sales through the '\vww.walmartca" website. 11.

The retail markets in which Walmart Canada participates are intensely

competitive. Walmart Canada faces strong competition from other discount, department, drug, variety and specialty stores. warehouse clubs ~:~nd supennArk&ts, many of which are regional, national or International chains, as well as internet-based retailers and catalogue businesses.

12.

Walmart Canada competes by offering a broad assortment of quality

merchandise and services at every day low prices (''EOLP'?. Walmart Canada's pricing

Case 1:05-md-01720-JG-JO Document 5939-4 Filed 08/16/13 Page 6 of 401 PageID #: 69101 PUBLIC

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philosophy requires that products be priced at an everyday low price, so its customers trust that prices will not .change under frequent promotional activity.

13.

As a result of the significant competition and consistent with the EDLP strategy

described above, Walmart's global profit margins on sales of products are very low, averaging between 3% to 4%. 14.

Walmart Canada forms strategic partnerships with suppliers to ensure that

supPUers provide Walmart Canada with the highest quality products at the lowest possible prices. Walmart canada is constantly searching for ways to reduce its

own operating costs,

so

as to continue to provide lower prices for Canadian consumers. By reducing the cost at which Walmart Canada purchases goods and services and maintaining low operating costs, Walmart Canada Is able to provide products to Canadian customers at lower prices. This model, known as the "productivity loop", has been key to Walmart's success and can be summarized as follows: whenever Walmart is able to lower costs, it lowers prices for consumers, ·which in tum leads to increases in sales. 15.

Conversely, as outlined below, Walmart Canada's inability to constrain the

Increasing costs of credit card acceptance in Canada results in higher prices for all customers of Walrnart Canada, including those that purchase products using lower-cost methods of payment, such as lnterac debit or cash. 16.

Walmart Canada has a bank affiliate, Walmart Canada Bank.

Payment Methoda Accepted by Walmart Canada 17.

Walmart Canada accepts cash, cheques, lnterac debit and general purpose

credit cards (Visa, MasterCard, American Express, Discover, China Union Pay, Diners Club and JCB) for payments at retail stores across Canada. For online sales at "www.walmart.ca" , Watmart Canada accepts Visa, MasterCard and American Express credit cards.

Case 1:05-md-01720-JG-JO Document 5939-4 Filed 08/16/13 Page 7 of 401 PageID #: 69102 PUBLIC

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18.

Credit card acceptance, particularty acceptance of Visa and MasterCard credit

cards, is aitical for Walmart Canada's business, given that Walmart canada's customers have become accustomed to paying by credit card and because credit cards represent a significant proportion of Walmart Canada's sates.

22.

The

cost to Wahnart Canada of credit cards is significantly higher than the costs

of other forms of payment used by customers, such as lnterac debit and cash.

In fact, credit

cards are the most expensive method of payment that Walmart Canada accepts. 23.

Specif~calty,

from-

the fees paid by Walmart Canada on each

credit card transaction C'Card Acceptance Fees'' range

Vasa

and MasterCard

to -de~nding upon

the type of credit card used by a customer, and t o t a l - annually

Case 1:05-md-01720-JG-JO Document 5939-4 Filed 08/16/13 Page 8 of 401 PageID #: 69103 PUBLIC

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When you ~ivide the cost of cash and lnterac debit by the volume of sales made using these payment methods, this shows that accepflng cash

?4:

:

costs Walmart Canada abo~ of each

Despite the fact that Walmart Canada h~as much sales volwne on

lnterac debit as it does on credit ·~rds·vs·lt

..



and MasterCard to accept credit cards th~n ~does to lnterac to

u-

to Visa

accept debit cards. Stated

somewhat differently, when compaJiing sales and cost of acceptance between credit cards and ..

f!

lnterac debit cards, credit cards represent-in sales costs. AHhough credit cards only make

in acceptance

of Walmart Canada's sales, they account for

of its total acceptance costs for all payment types. ~5.

Card Acceptance Fees for credit cards are a significant expense for Walmart

Canada. As noted above, Walmart Canada pays approxlmatel~ach year in Card Aoceptance Fees for Visa and MasterCard credit card transactions. 26.

The Card ~ptdj,ce Fees for

type of crodit card presented

~afma4 canada also vary ~ing. ~n the

by the customer for payment. Specificalty, each time that a

as-

customer pays with a "premium" Vasa credit card, such as a VIS& Infinite, Walmart canada can pay a Card Acceptance Fee as hlgh

or

commercial cards. as

compared with a Card Acceptance Fee of-pplicable to standard or "dassic" Visa credit cards. Similarly, for MasterCard's "super premium" World Bite. credit card, Walmart Canada can pay a Card Acceptance Fee as high as

. '

Card ,Ace

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