Evidence of meeting #66 for Finance in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was banks.
A recording is available from Parliament.
11:50 a.m.
Liberal
Robert Thibault Liberal West Nova, NS
The ABM organization that you participate in, or the network, is it a corporation like Visa is a corporation, or those others? Does it operate as a corporation, as an entity?
11:55 a.m.
Vice-President, Banking Operations, Canadian Bankers Association
The Interac Association does operate independently and they have members that are financial institutions. But it's also interesting to remember in terms of how the system actually works. If you go to your own bank and you withdraw cash from an ABM from your own bank, they are not connecting to a broader network. They're servicing you through their own proprietary network. But yes, the connection between the various ABMs, the network that exists, is through the Interac Association.
11:55 a.m.
Vice-President, Banking Operations, Canadian Bankers Association
No, it operates to bring functionality to the system by connecting the systems together.
11:55 a.m.
Vice-President, Policy, Canadian Bankers Association
It has a board of directors and so on, but we'll have to look into its corporate status. It's non-profit, yes.
11:55 a.m.
Vice-President, Banking Operations, Canadian Bankers Association
Yes, absolutely.
11:55 a.m.
Liberal
Robert Thibault Liberal West Nova, NS
So if I go to a white-label machine, as you call it, the one that I will typically find without a bank label in a mall, a restaurant, or a place such as that, I'll pay a higher fee. Is part of that fee to pay their share of the service on the Interac network? And is the other part the company's profit? Or is it the cost of operating and the profits of that white- label company?
February 15th, 2007 / 11:55 a.m.
Vice-President, Policy, Canadian Bankers Association
Do you want to take that?
11:55 a.m.
Vice-President, Banking Operations, Canadian Bankers Association
Sure.
In terms of the white-label ABMs, they tend to be in places such as airports, convenience stores, and so on. The owners of those properties are charging rent for the space, so that's part of the cost. There is a cost to accessing the network, to maintaining the ABM, to the security around the ABM, and to stocking it with cash. There's a whole variety of costs associated with running them and providing convenient access to customers, if they choose to use them.
11:55 a.m.
Liberal
Robert Thibault Liberal West Nova, NS
Is there an internal regulation mechanism to limit the charges that can be charged by these white-label machines? Or is it a completely free-market, competitive network?
11:55 a.m.
Vice-President, Banking Operations, Canadian Bankers Association
It's a competitive network and priced accordingly, because there are different costs associated with establishing a white-label machine somewhere such as a convenience store, an airport, or a sporting arena. The costs are higher, and it's a competitive market.
As I said earlier, consumers have choices in terms of how they want to access their money. If they decide to go to a corner store to get their groceries instead of to the grocery store, the cost might be a bit higher. It's a choice that you choose to make, and you're advised of the fees ahead of time.
11:55 a.m.
Liberal
The Vice-Chair Liberal Massimo Pacetti
Thank you, Mr. Thibault.
Mr. Dupont, do you have a comment on the subject? As far as you're concerned, it's more a matter of electronic payments, not automatic teller fees.
11:55 a.m.
Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
I would simply add that the operators of what we call these white label terminals are not regulated by the federal government. Businesses operate these networks and connect to the Interac network, but there isn't any regulation.
11:55 a.m.
Liberal
11:55 a.m.
Assistant Deputy Minister, Financial Sector Policy Branch, Department of Finance
Yes. That consultation will likely include all the stakeholders in the payments system.
11:55 a.m.
Bloc
Thierry St-Cyr Bloc Jeanne-Le Ber, QC
Thank you, Mr. Chair.
I'm going to continue by asking you a question on transaction delays. I think there are two aspects: there's the practical reality—earlier you explained a bit how the mechanics, protection and security work—but there's also people's perceptions.
People in my riding often talk to me about that, and I've previously experienced it myself. Perhaps I could cite some personal examples that have not been distorted by intermediaries. When we pay our credit card bill, the money is withdrawn from our bank account. However, if we go and look at our Visa, MasterCard or whatever account on the Internet, the transaction doesn't appear immediately. It will obviously appear a few days later, with the date on which the amount was withdrawn.
Now, in consumers' minds, there's a moment when they don't know where the money is. That's how this is presented. Wouldn't it be better to have amounts withheld on accounts, rather than withdraw the money from the account? That's a bit of a concern for people, who wonder about it.
I can give you another actual example, which I experienced last year at the same time. I received a cheque from my broker, and I gave him one to invest in an RRSP. That happened the same day; it was the same transaction. I deposited my cheque immediately. The amount of the cheque was greater than $1,000. Usually the bank automatically authorizes amounts under $1,000 without delay. The balance is drawn on my line of credit, as a result of which my line of credit goes into the negative, whereas my account shows an equal, positive amount. However, I can't transfer the money from one to the other to stop paying interest.
When I called my banker, he told me that, when I write a cheque, they pay the other institution immediately. So there has to be money in my account. I asked him whether the other institution gave them the money immediately. He answered that they had to wait five, six or seven days. Something isn't consistent. When I write a cheque, why do they immediately take the money from my account, allegedly, whereas there's a delay when I deposit a cheque?
There's an inconsistency in that mechanism. There's something very concrete, very palpable. Even in the case of an Internet transaction, the money is withdrawn or it isn't, but it can't be in limbo.
Can you do something about the perception and about conducting transactions in real time?
Noon
Vice-President, Policy, Canadian Bankers Association
Those are really very good questions, because they go right to the heart of what the process is for clearing cheques, for instance, or what the process is for electronic payments.
I'm going to turn to my colleague Karen in a moment, but we're talking here about quite a sophisticated technological system. If we went back 20 to 30 years ago, when we had banks open from 10 until 3 Monday to Friday and there was none of this, the range of payment options and transactions options has increased enormously since then. Having said that, some basic principles about how cheques clear and so on still have to be followed. They can be improved and automated, but maybe I'll turn it over to Karen.
Noon
Vice-President, Banking Operations, Canadian Bankers Association
In terms of how the system works, there were questions about why it takes time, where the money is, and so on. As Terry mentioned, it is a very sophisticated system. Your financial institution will take in all of the cheques that is has that day and process them that night. The cheques go to a processing centre, are sorted by financial institution, and so on. It's quite a sophisticated system, and I would really encourage you to ask the CPA more about how it works in terms of detail. We'd also be quite happy to invite you down to have a tour of some of these cheque processing systems.
Noon
Vice-President, Policy, Canadian Bankers Association
Yes, we'd be delighted to do that.
Noon
Vice-President, Banking Operations, Canadian Bankers Association
It's an incredible thing to see.
What happens is that the cheques have to both clear, which is the process of netting out the amounts that all financial institutions owe each other, and then settle, where the institutions pay each other the difference. When the money is going from the financial institution where you have paid your bill to the financial institution of the biller, that's the process of settling and clearing. In the meantime the money is in a suspense account and going across.
As I had said earlier in response to an earlier question, if all billers and all financial institutions were completely interconnected, the system would be fairly fragile. It would be only as strong as its weakest link. What we have right now is a very efficient and secure system.
Noon
Bloc
Thierry St-Cyr Bloc Jeanne-Le Ber, QC
I understand that. However, the process is the same for everyone. If, on a single day, I receive a cheque, I deposit and I write a cheque, I agree that my institution may not have received my money from the other organization. But it hasn't given away my money either. So there's no reason for it to collect interest during that period. The same rule should apply on both sides.
I don't see how they can immediately withdraw the money from my account, then give it later, and collect interest because they haven't yet received the money which is probably still being held somewhere in an intermediate account elsewhere.
Noon
Vice-President, Policy, Canadian Bankers Association
This goes back to the issue that was raised earlier as well. Karen was talking about the move to reduce the cheque holding period. You're talking about online payments and so on, and it's a fair point. I think what's happening here is that the Canadian Payments Association does have this system. It's called rule H6, and if you are a biller or a financial institution that participates in that—by which I mean that you've registered with it and you satisfy the system requirements for interchange and all those sorts of things—then you have to abide by the rules of that. It still takes a little while to process it, but it's credited to the account that day. The challenge is that there are a number of billers out there, either for technical reasons or whatever, that are not part of that rule H6.
We understand that the Canadian Payments Association is aware of this issue as well. They run that system. They're looking at ways to consult on it in order to address the issue that you're talking about. So we understand your point.