Finance Committee on April 19th, 2007

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

To Sonia and CIBC, it's not always true that it's up to the institution in terms of the white label. In most communities when you close branches—and 658 of them have been closed over the last few years—banks leave their ATMs for a little while, and then they get out of the business and let a white label in. That's how consumers don't have choice; it's because of that whole phenomenon by the banks.

I have two questions for you. When did you sell your shares in white label machines--and the same for RBC?

[The Chair, Conservative, Brian Pallister]

You're out of your allotted time, but we'll allow an answer to that question.

[Sonia Baxendale]

To my knowledge, CIBC has had no involvement in white labels since approximately 2001.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

So when did you sell those shares? If you had them until 2001—

[The Chair, Conservative, Brian Pallister]

Thank you very much.

No, madam.

[Judy Wasylycia-Leis, NDP, Winnipeg North, MB]

But, Mr. Chair, on a point of order—

[The Chair, Conservative, Brian Pallister]

No, madam.

We must close with Mr. Crête.

Mr. Crête.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. Tremblay, in the text of your statement, you say this:

The arrival of the digital wallet will mark yet another step in that evolution and could very well make the topic of today's meeting irrelevant.

Can you give us some idea—and the others can do so as well—why the arrival of this new technology could make our work here today pointless?

[Michel Tremblay]

I can't give you a specific date, but I can tell you that we will start offering the smart card in 2008. It is anticipated that that technology will be established around 2010. One can imagine that the digital wallet will become a reality or at least a technological possibility within the next five years.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Within five years?

[Michel Tremblay]

It will be gradual. We'll start with the smart card, and the deployment will start next year.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

In your opinion, will this technology really lead to the disappearance of ABMs or will it become an additional tool? Will it absorb a large part of the market currently occupied by ABMs?

[Michel Tremblay]

We often forget that ABMs are used for things other than cash withdrawals: they're also used for deposits and transfers, and they will continue to be used for those purposes. The digital wallet cannot do those things, but it will reduce the number of cash withdrawal transactions at ABMs.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

That would lead to an increase in costs. Withdrawals must represent a significant proportion of these transactions.

[Michel Tremblay]

As a matter of fact, ABMs are used just as much for deposits. Right now, the debit cards are used to withdraw cash. We must not jump to conclusions on that.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. Taylor, no one's talking about collusion here today, but I'd like to know whether you would have the right, without there being collusion, to obtain information from the banks under the current Competition Act, or would it have to be amended in order for you to be able to do that?

[Richard Taylor]

We don't have the power to conduct the study, except during an investigation when we have reason to believe that there's been an offence committed.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Therefore, the current legislation would not allow you to do this.

[Richard Taylor]

Indeed.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you.

[The Chair, Conservative, Brian Pallister]

Thanks very much to all of you for your participation in the panel discussion, your briefs, presentations, and answers to questions this morning and this afternoon.

We will suspend briefly.

[The Chair, Conservative, Brian Pallister]

We are reconvening our hearings on automated teller machines. Pursuant to standing order 108(2), this is a briefing on ATM fees and electronic payments.

Thank you to the members of our second panel for being here today.

As you know from viewing the previous panel, you'll have a maximum of five minutes to make your presentation. So as not to cut you off without warning, if you would like to make eye contact, I will give you an indication that you have a minute remaining. We will then go to questions from committee members.

Thank you for submitting your materials earlier. We appreciate that very much. We'll look forward to your comments and answers to questions from the committee members this afternoon.

We'll begin with UseMyBank, Joseph Iuso. Welcome. Five minutes to you, sir.

[Joseph Iuso, Chief Executive Officer, UseMyBank]

Thank you, Mr. Chairman.

Before I begin, I'd like to introduce my partner Brian Crozier, our VP of business development.

Thank you for giving us the opportunity to appear before the House of Commons Standing Committee on Finance. We hope we are able to provide you with the information about how our company, UseMyBank, provides billers in Canada with real-time confirmation of payments made through their bank systems.

Today we come before you to tell our story and how it relates to the bill payments infrastructure, which is governed by the H6 rules; the electronic payments infrastructure, which is governed by the new E2 rule; and finally, the Bank Act as it pertains to competition and innovation being stifled by some of the major financial institutions and related associations in Canada.

UseMyBank is a company that is in the business of assisting billers and online merchants in providing instantaneous electronic payment confirmation. Through our joint venture with GPAY, which provided us with biller access through all the FIs at the time, we began to market our services to the largest volume billers and online merchants in Canada, including WestJet, Rogers, Telus, Fido, Sears, and many more.

In August 2003, UseMyBank was invited to present a solution to the CPA committee, which was looking at the new E2 rule called draft rule X. Draft rule X provided guidelines as to how the new electronic payment systems would be put in place by the members of the CPA. At the time, it was devoid of technology restrictions.

In December 2003, CIBC and TD, along with the Alberta Treasury Board, closed GPAY's biller account. There was no real reason given, short of the fact that they did not like the way GPAY was doing business with UseMyBank. We were being shut out of our market by FIs that were poised to compete with us.

After further probing, it was discovered that they did not like that in order for UseMyBank to facilitate the payment, we would act on behalf of the buyer, in essence acting as their agent to effect the payment at their FI's website, and receive a real-time confirmation that the transaction had been successfully completed. This is how we are able to get the real-time confirmation of the payment to the billers.

This forced us to use an inferior product called e-mail money transfers instead of the bill payment service. This form of payment is inferior, as the person sending the money could cancel the transaction once it had been sent from their FI. In addition, it now cost the buyer an additional $1.50, which went to their FI.

Originally, e-mail money transfer was a real-time account-to-account transfer service. We were able to deposit money within minutes to the GPAY account. In essence, it was the real-time system this committee had been looking for. The unfortunate part is that there are so many restrictions on this service that it is not a viable substitute for most businesses at this time.

In 2005, Scotiabank launched Interac Online. They sent a letter advising GPAY that they would close GPAY's biller accounts access in 30 days. The reason given was that they could do so without a reason on 30 days' notice. GPAY sued in Alberta and was able to get an injunction until September 2005. Then the BNS closed GPAY's accounts.

The net effect was like shutting off water to a restaurant and peddling bottled water to patrons. This forced GPAY to launch the first private action under section 75 of the Competition Act. In 2006, the Competition Tribunal dismissed GPAY' s application. The decision is now under the Federal Court of Appeal.

In addition, the CPA, to our dismay, introduced rule E2, which was a weapon for the banks to use against billers who decided to even think about using UseMyBank's services. It seems that they would like to have a monopoly on electronic payments.

This brings us to the present. The remaining banks have been friendly to date and are now undertaking reviews of GPAY's biller accounts and bank account access. It is not clear if GPAY will continue past the next 60 to 90 days, again leaving GPAY no recourse. This committee is one of its final hopes. This hope is extended to the many billers and online merchants who are waiting with bated breath to see if we win the ultimate right to provide an innovative technology that could streamline their businesses by providing real-time confirmation rather than waiting on some fax or EDI report from the bank.

In conclusion, we would like to make three recommendations to this committee. The first is a review of the H6 rules that govern the bill payment system. Treat the system as an infrastructure operated by the banks, but which is accessible by non-FIs such as UseMyBank. This would be similar to how the telephone lines were opened to outsiders. That has promoted a healthy competition among companies that has benefited Canadian consumers and businesses.

The second is that the E2 rules, which govern the electronic payment systems in Canada, should be reviewed. They force all electronic payments to be initiated by the bank's website, and no third party is allowed to be involved in the payment process. Although this rule looks simple, it has the net effect of stifling competition and innovation. The FIs are the only ones that effectively rule the system, therefore creating a monopoly sanctioned by the CPA E2 rule. This is totally contrary to what has been legislated as part of the 1996 consent order handed down on ATMs.

Last, with respect to the Bank Act itself, a revision was done that basically said that the banks are not allowed to close accounts or deny access to consumers who meet certain criteria. This was not extended to corporations, or if it was, it was not being interpreted that way.

In essence, the banks are allowed to pick and choose which companies are allowed to have bank account access and use their services. As such, there's no protection for corporations in good standing who wish to do banking at the same bank as their consumers. This would allow them to take advantage of cost savings, much the same way people would go to their local ATMs and pay no fees.

Banks in Canada are like the waterworks: they are an infrastructure to which each of us must be granted access.

We would like to thank you for your time, and will remain at your disposal to answer questions.

[The Chair, Conservative, Brian Pallister]

Thank you for your presentation.

We'll continue with Evan Soikie, who is here on behalf of the Association of Community Organizations for Reform Now.

Five minutes to you, sir.

[Evan Soikie, Board Member, Chair, Ottawa Chapter, Association of Community Organizations for Reform Now]

All right. Now, I didn't bring a speech with me, so we'll see how I do.

I'll first mention that I'm here representing about 7,500 Canadian members of ACORN and a number of people who are non-members but who are the working, and quite often struggling, families and individuals.

I have a number of concerns that I've been asked to address. The first one is that of NSF charges, and the fact that they've been increased to substantially high rates. The people I represent do not feel that NSF charges right now reflect the administration costs. We feel that NSF charges generally fall on working individuals and on those who are struggling to meet the bills. As a result, banks are directly profiting from struggling families and individuals.

You're going to find, as I go through this, that there are several aspects in which we feel this is happening. It's quite difficult for the people I represent to deal with.

I'd like to quickly comment on standard bank fees. From my understanding, if people have $1,000 or more in the bank, quite often they will avoid a number of bank fees that most people will incur. Why is it that when people have $1,000 in the bank, they don't have to pay these fees, but when people are struggling to pay the rent and they can't make that $1,000 income, they are the ones being hit with these bank fees?

Of course, as it was a hot topic earlier, I have a few comments on ATMs. Due to the presence of white label ATMs, we're finding that there are fewer and fewer bank-owned ATMs. Quite often we see that in low-income neighbourhoods. All of a sudden, a large population is finding it very difficult to reach those ATMs.

Additionally, banks at this point have been denying some people I know, and some of my neighbours, access to bank services in total. That goes into another aspect: privatized industry. I have people who can't go to a bank to cash their paycheque. They find themselves going to Money Mart or payday lenders. Banks are investing in these, turning customers away from their own banks and saying, well, you're going to have to go to this company, which is now charging rates outside of anything that banks are being legislated.

There's not much need to mention the fact that banks are not charging ATM fees in the U.S. and Europe. However, it is worth mentioning that, from what I've been told, TD right now is not charging ATM fees to their U.S. customers. Why are they unwilling to provide that same service to their Canadian customer base?

With regard to the future of the finance industry, I think we see that banks are investing in private organizations, allowing them to skirt around the legislation currently governing them. We would like to see some kind of legislation put into things like the white label, the sub-prime mortgage companies, and payday lenders. It's quite often the struggling individuals, the people the banks are denying due to their financial status, who are being forced to pay higher rates for the services that banks generally would offer.

The last thing to mention is that from the studies I saw in a report I received, Canadian banks have some of the highest service rates and some of the highest profit margins seen internationally. We're quite upset to see that banks would be putting their bottom line above customer service, denying customers what it is they're asking for just for the sake of protecting their $18 billion profit margins.

I think that's where I'm going to wrap it and pass it on to the next person. Thank you.