Thank you very much, Mr. Chairperson and committee members.
I'll give just a bit of background about my research. I've been studying the phenomenon of financial exclusion, initially looking at Winnipeg's north end, which Andrew Douglas has already referred to. I'm in the first year of a three-year study, with funding from SSHRC, looking at financial exclusion in three inner cities in Toronto, Winnipeg, and Vancouver.
I co-authored a report looking at some macro-statistics regarding financial exclusion and have submitted that as a brief. What I want to do now is just provide one point of context that I thought I could contribute, and then refer to the ATM fee question.
I noticed that in your March 22 meeting there was reference to particular groups that face specific challenges in regard to financial services. I'd like to pick up on a particular group that I think faces this challenge, and that is low-income people.
One way to think about the financial service sector, in my mind, is to think about it as having a supply side and a demand side. For low-income people, on the demand side, I think there's evidence that things have worsened for them. There's evidence that in the 1990s incomes of low-income Canadians stagnated and that wealth and income inequality has grown. What this means is that increasing numbers of people--and to an increasing extent, I think--have fewer incentives to be banked.
With the limited data available, I estimate that roughly 5% of Canadian adults are unbanked. And up to 10%, in addition, are under-banked; that is, they have a bank account but hardly use it. Possibly up to 16% of low-income Canadians are unbanked.
On the supply side of the question, I think there's already been a reference to a two-tier market in the financial sector, and I think there's evidence of that in many inner cities. By that, I mean that the main tier is controlled by banks and other service providers, while the second tier is controlled by fringe banks--pawn shops, payday lenders, rent-to-owns, and so on. These fringe banks are particularly focused on low-income Canadians.
For instance, in Winnipeg, I found, from the Financial Consumer Agency of Canada's data set on bank branch closures, that from 2002 to 2005 the majority of branch closures in Winnipeg occurred in low-income neighbourhoods, and that's referenced in my brief. On the other hand, fringe banks are seeing great opportunities to make profits in inner-city neighbourhoods. Again, for instance, in Winnipeg's north end, in 1980 there were 20 bank and credit union branches and only one pawn shop. By 2003, a reverse had happened. There were five bank and credit union branches and 18 fringe banks.
So how does this segmentation of banking affect a growing number of low-income Canadians? This relates to my final point regarding ATM fees. In the studies I've conducted, I've found that most low-income people--like most people, I would argue--generally behave rationally; that is, they choose financial services based on various costs and benefits they see.
The three costs I wanted to pick up on are the explicit costs, or fees, one faces. The ATM fee, the inter-bank fee, and the white label ATM fee are the costs we're talking about the most here. But for many low-income Canadians, that's one of many costs they face. There are implicit economic costs that low-income people face. For instance, bank branches have been shutting down in low-income neighbourhoods. They don't have telephones, they don't have Internet, and therefore they have to travel further. The costs to them are going to be greater. So they face more implicit economic costs.
There are, additionally, implicit social costs that low-income consumers face in terms of accessing banks. We've heard this again and again: low-income people go into banks and feel that they don't get a level of respect that they would get in other places. In fact, in some cases people feel they receive more respect in fringe banks. So there are social costs, I think, associated with this.
For many low-income people, the implicit economic and social costs of using banks are heavy, and ATM fees add one more cost. For instance, for many low-income Canadians, white label ATMs are not convenient. They are simply the only option they have.
So to address the problem of financial exclusion, what I think is needed is to look at the supply side in a broad sense. What's needed are more branches, more technologies, and more services for low-income people.