Thank you, Mr. Chair.
I've been asked to appear before the committee to give my views on ATM fees. I have not formally studied the issue, but I have read much of the literature and am aware of the issues involved. I have co-authored three books and numerous articles and book chapters on the Canadian financial industry, so I'm certainly aware of the issues and can speak to the question as an informed, dispassionate consumer.
ATM fees are contentious. In fact, one might say they're thorny. Given the views of my co-panellists, I might describe myself as a rose between two thorns.
I will argue that not all ATM fees are bad, but not all ATM fees are justified. To address this, I think it's useful to sort ATM fees into three categories. One is own-bank fees, the second is interbank fees, and the third is white label machine fees.
When most people speak of ATM or ABM fees and the controversy about them, most people are referring to the interbank fees, which I think are the ones with the highest profile. Nonetheless, the other fees exist in the system and should be addressed.
On the own-bank fees, most of us don't even realize we pay them, because they're covered by most bank plans. At my bank, I downloaded from the Internet a little thing at the bottom, and that's the per transaction cost if you don't have a plan. Most people have a plan so they don't pay it. Nonetheless, at my bank, it's 60¢ per transaction for an own-bank withdrawal. It's important to put that into perspective. It's a dollar if I go to a bank and see a teller to withdraw my money.
The issue isn't paying to withdraw your money. That's an embedded principle, or at least an embedded practice. The issue is relative pricing. The key is, what is relative pricing? My bank charges 60¢. Evidence from the U.S. is that the cost of a transaction, including amortization, salaries, and technology costs, is about 27¢. If we assume the U.S. experience is transferrable and we allow for exchange rates, then the banks get about a 100% surcharge on their basic cost. I would argue that this surcharge is probably reasonable.
The banks would argue that it's reasonable because of convenience. Well, the new system is not necessarily convenient. By commodifying the banking system, what they have done is actually restrict consumer choice. I haven't moved in 25 years, but I'm on my fourth bank branch. My account is in its fourth branch. The two closest to me have closed, and it's now extremely inconvenient for me to find money. That's not because I've changed banks, but because of the rationalization and reallocation of resources. The banks have in fact restricted choice for many people. I would argue that this is particularly a problem for students, seniors, and people living in rural areas.
That's for own-bank fees. Interbank fees are over $1.50. I would argue that these fees are probably too high and that a reasonable charge for an interbank fee is the same as an own-bank fee. I understand that there are switch costs involved through Interac and that there are interbank charges involved. These are small, and I think they can be accepted by the banks as a cost of doing business.
I recognize that this would introduce a moral hazard problem, where the banks would have little incentive to install and maintain machinery and the systems. However, as the physicists say, that's an engineering problem. I think it's readily resolvable by such things as shared revenue mechanisms or common platforms.
Turning briefly to the white label machine fees, these are pure convenience and outside the banking system. They are there for consumer choice, usually at awkward times and awkward hours. If consumers choose to use those machines, then they should bear the cost of using those machines. It is not the case for interbank ATMs, because even rational consumers, at normal business hours and in normal locations, often find that their access is restricted.
Thank you.