Good morning. Thank you for giving me the opportunity to address the committee on this important issue of ATM surcharging.
FICANEX Services is the operator of the Exchange and is owned by a number of smaller Canadian financial institutions. It has two core principles for the Exchange network, one of which is no surcharging, and the other is full functional access, including deposit taking, transfers and balance inquiries. At this date the scope of the network is 2,150 ATMs, operated by 244 financial institutions, in all provinces. Of the 244 financial institutions, all but eight are credit unions, and the balance are chartered banks.
The network is seen to offer choice for smaller financial institutions and gives customers of these financial institutions locations to perform surcharge-free transactions. In terms of surcharging, I think it's very important for the committee to understand there are three types of fees that change hands within the financial institution sector. There is interchange, paid by the card-issuing financial institution to the ATM owner—and in this light I'm going to refer to it as a financial institution. There are service charges, paid by the cardholder to their own card-issuing financial institution. And there are surcharges, paid by the cardholder to the ATM owner—and again, in this light I will refer to it as a financial institution.
We must be careful not to look at surcharges in isolation, because it's important to understand what the implications may be if indeed surcharges are regulated. Fees generated by ATM owners, be they surcharges or interchange, go towards covering the operational costs of ATMs. Any reduction in the surcharge revenue received by ATM owners may have two sets of unintended consequences.
Financial institutions will either work together to increase interchange fees, those paid between the card-issuing financial institution and the ATM-owning financial institution, to compensate for lost revenue. The card-issuing financial institution will simply pass this on to its cardholders, and therefore, instead of being surcharged, the consumer will be service-charged to a greater degree.
The other option available is that because the business case for ATMs—and we do have the greatest convenience in the world here in Canada.... If we take away the income side of the picture, given the cost of operating these, a number of locations will close down and there will be reduced convenience for Canadian consumers.
The Exchange's approach is to mimic the large proprietary networks of the five big banks in the country—though you may ask why I am saying this when I'm running a network that doesn't surcharge. Our network is larger than the smallest of those and about half the size of the largest; therefore, transactions made by Exchange cardholders at ATMs that display the Exchange logo will go without surcharges.
Having said that, every single one of our financial institutions also belongs to other networks. They all belong to Interac. Many of them belong to a credit union network known as Acculink, and internationally they belong to networks like Plus, Cirrus, and the Exchange in the U.S. Transactions made by cardholders on ATMs with those network symbols will be processed under the operating rules of those networks, which may include surcharging. So a Royal Bank cardholder, for example, who is not a member of the Exchange will be surcharged when using an Exchange ATM.
FICANEX believes that surcharging in general discourages a wider use of ATMs, and tends to push Canadians to use their own financial institutions. This is an impression that the Canadian Exchange spends a lot of time and effort trying to overcome, because it's seen as the norm. Nevertheless, it is critical to realize that any reduction in surcharging is either going to result in higher service charges ultimately or will reduce convenience for Canadian consumers.