Evidence of meeting #76 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.
Bloc
Thierry St-Cyr Bloc Jeanne-Le Ber, QC
Strictly for your service, what percentage of costs are fixed infrastructure costs and what percentage are costs that are really proportional to the number of transactions?
President and Chief Executive Officer, Interac Association
Our services interconnect the various nodes that sit on the network. Fourteen direct connectors sit on the network. They are responsible for having a physical link with every other direct connector so there's no point of failure. Interac is responsible only for the infrastructure and the telecommunications network to connect those nodes, as well as some fraud and monitoring systems.
So you are correct in that our limited responsibility from an information technology perspective is somewhat fixed, but we are not involved in the data processing and switching systems. Those are our members' systems, whether they are acquirers, issuers, or financial institutions.
Conservative
The Chair Conservative Brian Pallister
I have a couple of questions.
Mr. Lawford and Mr. Conacher, in your written briefs you allude to the need for some fee structure to be in place for the banks, in order to protect their own clientele. In essence it's a kind of firewall, for lack of a better word, that safeguards their own clientele against the reality of the marketplace. Essentially, if you could freely access your bank account from any other machine, then why not access ING Direct from your bank's machine too--that sort of thing.
Mr. Lawford, can you elaborate a little on that point? If that's the case, how could one then argue for a kind of utopian situation where there wouldn't be fees? Wouldn't you be asking an industry that we would like to be more competitive to be less so?
Counsel, Canadian Consumer Initiative
If I may, the banks have made that utopia already; it's called Interac or the Exchange. They decided to have a network because customers demanded to have a network where they could take money from machines, from other banks. The value of the network to consumers grows as the network grows. The fees that are put on when you take money from the wrong bank machine, if I may put it that way, we believe are there to keep you loyal to your own bank, so you won't go with ING. You use the Royal Bank's machines because they're closer to you, for example. That's the reason for those fees.
We've seen no justification from the banks on how much these cost. It looks like the marginal cost for actually doing that sort of transaction at the wrong bank machine is probably very low--it's probably a lot less than $1.50--and Canadians are fed up with that. We haven't seen what the costs are because no one will tell us. That is the problem at the moment. That's why we think these fees--the ones where you take money from the wrong bank machine--are bothering people, and that's why we're here today.
Conservative
The Chair Conservative Brian Pallister
Before I go to Mr. Conacher, I accept your point--several have made it--about the advantages of being able to analyze the fairness of these fees as they pertain to the use of the network. But that being said, are you not then asking the industry participants to disadvantage themselves in terms of their ability to retain clients? The implication is the removal of a fee that would allow their clients to access any of their competitors more effectively.
We wouldn't do this for any other industry in the country. We wouldn't say to marketers--except in western Canada with grain marketing currently, but that's another issue entirely--in a competitive industry that they don't have the ability to run their business, in effect, to protect their own business. Isn't that what you're asking here?
Counsel, Canadian Consumer Initiative
The parallel can be drawn with telecommunications. We asked large telecommunications providers to allow competitors to connect to their networks. It's the same principle. The network is more valuable as it gets larger. Everyone joins the network and the benefits go to consumers. Yes, it is somewhat of an interference in a completely free market; however, the value is spread amongst more people, including consumers.
Conservative
The Chair Conservative Brian Pallister
So the question would be where that stops, or does it stop? Are we then moving towards one big giant utility that offers all Canadians savings accounts with regulated rates, and so on?
What I've seen, as Mr. Thibault has alluded to--we have similar demographics in our ridings--is that when banks have left, credit unions have moved in. We have found there are better services and a combination of various ABMs in communities that otherwise would not have banking services at all. If we try to regulate away the differences, are we not in danger of the perverse consequence of actually limiting the availability of that same service in certain parts of our country?
Mr. Conacher, I'll give you a chance to respond.
Counsel, Canadian Consumer Initiative
I don't believe you're going to have that kind of flight, but I'll let him answer.
Conservative
The Chair Conservative Brian Pallister
You say you don't believe that, but it goes against logic that you could regulate banks to be present in places that they don't want to be.
I'll let Mr. Conacher respond.
Chairperson, Canadian Community Reinvestment Coalition
The committee is missing two key pieces of information, and as a result, I don't think it can make any recommendations that would actually solve any of the problems we are raising, in reality. Those two key pieces of information are these: what does it actually cost the banks to provide all of their services and products versus the fee revenue from each of those services and products; and secondly, what is actually the level of competition? There hasn't been a study since 1998, and that was only a partial study by the Competition Bureau.
I believe you'd find that there are actually monopolies and duopolies in a lot of areas, if you looked at a realistic definition of “market” and a realistic definition of how customers actually want to bank. A lot of people don't want to use telephone and Internet, so you don't include those in. If they're not using them, it means they don't want them and they're not choices. That's how competition is defined, by what customers actually do, not what you want them to do or what the banks are trying to shove down their throats in terms of their agenda.
If you had that information, you could look at the situation and say, okay, in this area, in this market, that bank branch is actually a utility; it has a monopoly, and therefore we're going to regulate the prices. And in this area, there is no banking service.
In the U.S., what they do in those situations, and have for twenty years, is look at the service lending investment patterns and the branch closure patterns, and they require banks to reopen branches or set up special programs, because they know and have known for more than twenty years something that, for some reason, most federal political parties and certainly the federal government don't seem to want to recognize. Banking is an essential service, and bank branches that serve communities are essential to the health of those communities in every single way in terms of the local economy and community development.
So without these two pieces of information—and this is what the committee should recommend—we need a full study of whether there is actually competition, a local market study across the country, and an audit of the costs and revenues and the profit margins for the banks.
We're not asking, as Mr. McCallum implied, for these fees to be eliminated to zero—no, just lowered to a reasonable profit level. If it costs the banks 10¢ for you to self-serve.... When you go to a gas station, you usually pay less; when you go to the banks, the price has doubled. You pay more now to self-service bank than you do to use a teller. It's kind of bizarre, isn't it? You're pushing the buttons and you pay more.
We're just asking that they be lowered to a reasonable profit margin level. An average corporate profit margin would be 15% to 20%. So if it cost the banks 10¢ and they're charging $3, that's a bit more than a 15% to 20% profit margin. If they can prove it costs them $2.50 and they're charging $3, then you're in the 15% to 20% profit margin range.
The banks—the CBA—claim in these documents that they do not cross-subsidize any costs from any part of their operations, that not one cost from any service or product or loan or credit instrument is cross-subsidizing another cost. So they know their costs, exactly, for every service and product. That's what they claim in these documents. They can't have it both ways. Require them to prove that their prices are fair, and if they can't, require them to lower their prices.
Conservative
Mike Wallace Conservative Burlington, ON
Thank you, Mr. Chairman.
I apologize to the presenters today; I was out defending my private member's bill before I got here, and then there were votes, and so on. I'm very familiar with the topic and I appreciate the time you've put in here. So I may ask a question or two that have been already answered, but I would like to know what the answer is.
My friend from the New Democratic Party is from a different type of riding from mine. I'm from Burlington, Ontario. We have banks on every corner. I can tell you that my constituency office is in a building in a Burlington mall, and there is a bank machine, and 30 feet away there is another white label machine. We have banks and bank opportunities virtually everywhere in my riding. I try to use my own bank—which will go unnamed—to try to reduce as many fees as possible that I have to pay.
There are two issues that I want to be clear on for my constituents. There was an indication that the banks actually own the white label companies, or they finance them. Well, they finance lots of businesses, but they are actually the owners, and what they're doing is abandoning the marketplace so that white label companies can take their place and charge more, and then eventually, through profits, the banks would make more.
Is that an accurate statement? Maybe Mr. O'Connell can answer that. I don't know.
President and Chief Executive Officer, Interac Association
No, it is not, unequivocally.
Conservative
Conservative
Mike Wallace Conservative Burlington, ON
Okay. I think some of them had been trusts, or income trusts maybe, even before, too, but they are privately owned options.
Are there those that are traded through shares, do you know?
President and Chief Executive Officer, Interac Association
You have a mix. Most are medium-sized privately owned companies. A member of ours opened Moneris Solutions, which was publicly traded, I believe, and now has gone back to being private. They are medium-sized, to the most part, Canadian businesses.
Conservative
Mike Wallace Conservative Burlington, ON
Okay, so that deals with that.
The other question that has been brought forward...and I've experienced it myself, as a municipal councillor, with sole-source RFPs, requests for proposals. I had one--I don't know where it is--from the airport in Victoria that we recently closed at the end of March. It says directly in there that whoever bid on this would have exclusive use of the facility. Now, isn't it the operator of the facility who is making that decision, that it's a sole-source function of that RFP?
Mr. O'Connell, your members probably bid on these things.
President and Chief Executive Officer, Interac Association
That is correct. That is fully under the control of the owner of the premises, the way they want to architect their RFP and architect their strategy for their premises.
Conservative
Mike Wallace Conservative Burlington, ON
I didn't see anything in there that said it had to be a bank, a credit union, or a white label company. Is that the norm on RFPs, that it's open for complete competition to whoever is providing automated banking services? Or do some of them say it needs to be a bank or a credit union?
President and Chief Executive Officer, Interac Association
I wouldn't have purview to enough of the merchant-specific RFPs to answer definitively. If you look at the market and you look at our members and where their machines are deployed, it seems to indicate that it is certainly open to full competition, because you have many of these premises with both types of devices.
Conservative
Mike Wallace Conservative Burlington, ON
Okay.
I have another concern. To be frank, we as a government have had success with the discussion on the ABM piece with the finance minister, and the discussion that's happened here at this table has driven some banks to make some changes in recent days on some fees. Maybe it is not to this gentleman's satisfaction, but it has happened and will likely continue to happen.
From a competition point of view--correct me if I'm wrong--credit unions have a deal amongst themselves that they don't charge.... For example, if I use credit union A and I belong to credit union B, it doesn't cost me anything to use that. Is that a competitive advantage for credit unions?
President, The Exchange Network (FICANEX)
Whether it's an advantage...it's a competitive reality that credit unions are obviously significantly smaller than any of the five chartered banks, so they band together and provide a larger scope of access. They have two options. There's a network called Acculink, which is credit union only, and then they could participate in the Exchange--which, other than in the Prairies, the rest of the country does--to allow for a no-surcharge situation. Then some of the individual credit unions choose, at their option, not to charge any incremental service charges to their own cardholders for those transactions as well.
Conservative
Mike Wallace Conservative Burlington, ON
Thank you for that answer.
Because it is a competitive marketplace, they're doing that to attract customers. These are the types of programs they're offering to potential customers to come and join their credit union. Is that an accurate statement?