Government Operations Committee on Oct. 31st, 2016

[Erin Weir, NDP, Regina—Lewvan, SK]

Mr. Irwin, you suggested that many people might perceive the payday loan industry as not meeting a real need. I would suggest that in fact we see it as a big market and think maybe there is an opportunity for Canada Post to participate in it.

You made the point that one of the reasons payday lending is sometimes not very profitable is that there are a lot of defaults. In your business, I wonder, if it were possible to just get the Canada Revenue Agency to collect money from those who default, would that help to make it more profitable?

[Tony Irwin]

I never thought about that, to be honest with you. Certainly our position is that the industry does meet a very real need. That's why it exists.

Yes, we have defaults—student loans do go into default—but that's an idea that maybe I should take back to our members. I haven't thought about that before.

[Erin Weir, NDP, Regina—Lewvan, SK]

Yes, if only there were a federal government agency involved in payday loans.... Perhaps it could happen.

I have a question for Mr. Hannah.

I want to thank you for a very succinct presentation, but to make it even shorter, it seems to me that you were arguing that Canada has a well-developed banking sector and therefore does not need postal banking.

Another country that's had a well-developed banking sector for a long time is Switzerland, yet the Swiss post office has gotten into banking in a very successful way. I wonder if you have any reaction to that.

[Darren Hannah]

Sure, there are some countries around the world that have a banking element to their post office, but typically where they do that has been a part of the postal system since its inception and the banking system effectively grew up around it, so it already occupied a part of the market.

I'm not aware of any instances in a developed banking market with effectively universal access to banking and universal ownership of accounts of a post office being able to interject itself successfully in that market and do so in a sustainable manner.

[Erin Weir, NDP, Regina—Lewvan, SK]

You don't see Switzerland as such a case? Your argument would be that postal banking existed before the rest of the banking system?

[Darren Hannah]

My argument would be that in that instance, as with most others, the postal banking system grew up with the banking system so everything grew around it. I'm not aware of many instances where you have had successful entry into a developed banking market by a post office.

[Erin Weir, NDP, Regina—Lewvan, SK]

Okay.

Mr. Martin, you're dealing with a committee that has a chair and a vice-chair from Saskatchewan so we certainly appreciate the importance of credit unions. Would you also acknowledge that there are many parts of Canada where credit unions do not have a great presence?

[Robert Martin]

Yes, I would.

We have been predominant west of the Ontario border historically, especially in B.C., Saskatchewan, and Manitoba. We've been growing in Alberta but we do face ATB there.

In Ontario, if you live in Toronto or if you live in Ottawa, you might be misled even in terms of the scope of the credit union system because you might not see that many. My dad was a member of the Ontario Educational Credit Union and we used to have to drive up to this little box of a building. I always wondered what he did there and then I realized it was a credit union. So that was not in my experience growing up.

But if you now go into London, Ontario, or Guelph, or Kawartha, you're seeing credit unions growing all over. I think that part of the dynamic is our competitors at the banks changing their positioning in the market and our being able to take up some of that.

Once again, we have a lower penetration in the Atlantic market but the banks have been there historically right from the beginning of Confederation so it's been a struggle.

[Erin Weir, NDP, Regina—Lewvan, SK]

I guess my point is that I don't think anyone who's advocating postal banking wants to put credit unions out of business. I wonder if there might be some compromise whereby Canada Post could provide banking services in areas where credit unions don't have much of a presence. Perhaps credit unions could offer some services out of post offices in regions where they do have strong networks.

[Robert Martin]

Of course, in theory, that would make sense. We see that there are opportunities. There are credit unions that are interested in those kinds of models.

I have to put a little history around what I'm saying. You're saying there's nobody who's going to think that Canada Post should come in and put credit unions out of business. Our historical experience with some crowns has been that we faced extremely competitive lending, both in terms and in price in the past. I don't want to dig up old history, but Farm Credit Canada was one in particular that was a very big challenge for our system. It moved from almost 14% to 15% of the market in 1993. Then it got a mandate to compete directly, and it moved up to 32% of the market. We struggled to maintain our market share at around 10% to 11%. Part of my job was to take the phone calls from credit unions that were saying, “Here's the term sheet from FCC that we can't match; there's no way.”

[Erin Weir, NDP, Regina—Lewvan, SK]

Sure. I don't know how much time we have to get into that debate about FCC, but I appreciate the analogy.

[Robert Martin]

I have to close on that, because I do want to recognize that our relationship with the FCC is much better than it used to be.

[Erin Weir, NDP, Regina—Lewvan, SK]

Okay.

[Robert Martin]

It took a good long six or seven years of dialogue with them to get into a better space, with the backing of minister Ritz.

[Erin Weir, NDP, Regina—Lewvan, SK]

Maybe it could work out well with Canada Post then.

[Robert Martin]

It's possible, but we want to be certain that if we go into this, it's done in a way that's open to all parties to participate in and it's not done on an exclusive basis with, say, one or two large banks that they white label.

[Erin Weir, NDP, Regina—Lewvan, SK]

On that note, I do have another question for Mr. Hannah.

Some of your members are certainly contemplating closing some branches in less profitable or slower growing locations. Instead of closing those branches altogether, what if your members were able to offer some banking services out of the postal outlets that are continuing? What I'm saying is that Canada Post wouldn't necessarily get into banking itself, but it would collaborate with your members to provide a venue for their services.

[Darren Hannah]

The short answer to that, I think, is tied in with the earlier question. The physical location is only one aspect of viability. It ultimately has to be economically viable for the bank and also for Canada Post, frankly.

[The Chair, Conservative, Tom Lukiwski]

Mr. Ayoub, you have seven minutes, please.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Thank you, Mr. Chair.

I thank the representatives of the Canadian Bankers Association and of the Canadian Credit Union Association for being with us today.

We are at the end of our consultation process. We have heard a lot about postal banking. We were told that it could be a viable solution in certain cases. This was the opinion of the members of the union, among others.

I listened to you. I would have been surprised had you said the opposite of what you said to us. I have never heard any person or industry speak in favour of the arrival of a new competitor on the market. I did not expect you to say anything else. This does not detract from you in any way; it is nothing personal.

However, I heard Mr. Martin say some interesting things. The cooperatives have a greater interest in the needs of members. They have a concern that has been raised on many occasions throughout Canada. In remote areas, there are fewer services. In certain cases, even the cooperatives are closing. That is unfortunate given that in certain cases, they are the last financial institutions in the regions.

That said, there is still worse. Often, the people who live in these regions do not have access to quality Internet services. When you leave large urban centres, you are caught in a vice.

As you confirmed, Mr. Martin, 1% of the population does not have a bank account, and these are mostly low-income people, people who have particular needs and cannot get access to credit easily.

As people say, banks are interested in the bottom line. Mr. Hannah, you said that there was a rigorous process that precedes the decision to close a branch. Nevertheless, if you are making money, you will never close it. If you are not making money, you will close it rather quickly. To my mind, it is that simple.

Can things be seen in a different way, and could we take advantage of this opportunity? In fact, it is an opportunity. We were talking initially about Canada Post, but we came to talk about a postal banking service. This has highlighted a gap in the Canadian banking and credit union system. There are improvements that could be made. There may be an opportunity with Canada Post, or perhaps not.

I would like to hear how we could cooperate—Mr. Martin will be happy—in order to offer new services that may not be offered currently to Canadians who need them, so that we may become a world leader in banking and credit union services, in cooperation with Canada Post.

I used three minutes of my speaking time for this long introduction.

Mr. Martin, could you answer me first?

[Robert Martin]

It's a fact that a number of our credit unions have expressed interest in co-operating with Canada Post, if it is done on terms that are fair in terms of the bidding process or the participation process. As I mentioned, our concern is that if it turns into a bidding process that is exclusive, they may end up not being able to participate as a small institution. You have to keep in mind that many of our institutions are below, say, $1 billion in assets, which is fairly small. It might be difficult to participate, so there would have to be an open process. As I said, there are credit unions that are interested.

We do agree that in the north, for example, in rural and remote regions, there are definite challenges. To pick up on the point made by Darren, if you are running a credit union and you are looking at a need, say, in the north, you have to make sure that the branch has some kind of financial viability, or what ends up happening is that your members are actually subsidizing that branch. Part of our job is that we have a responsibility to our members to manage their funds effectively and make investments that work. That said, we are looking at other models that do not necessarily involve branches. We are moving to micro-branches, ones that are a sort of more elaborate ATMs.

We are open to the discussion—I made that point a couple of times in my presentation—but it all depends on what form the dialogue would take.

I just want to pick up on another point, because I've heard it said twice, that credit unions are closing branches. While it may be true that some are closing, the number of branches in our system has been steady—uptick or downtick by one or two—historically for many, many years. It's not like we are shutting down branches wholesale. In fact, Mr. Hannah might think we are over-branched, given our asset size relative to the banks.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

I'd like to go back to the cooperation aspect and to the training Canada Post employees would have to receive.

How do you view the fact that Canada Post employees would have to become financial advisors? What type of training would these people have to receive? How can we teach employees who have not worked in the financial sector to offer services of that type?

When you recruit your employees, what type of qualifications do you look for? What links could there be between those qualifications and those of the people who have experience at Canada Post?

Mr. Hannah, what is your answer?

[Darren Hannah]

Sure. There are a couple of questions embedded in there. I'll separate them out and take the last one first.

What sort of background do people have who work in the banking sector? Typically they come from a financial services environment. They may have a degree in business. Depending on the financial product they're selling, they will have different licensing requirements. If you are involved in securities, you'll have securities licensing; you'll have to deal with mutual funds. It really depends on what exactly you're doing.

Another key point to consider—and I just want to raise it here in this context because I think it's an important one—is to recognize that embedded in all of this is an assumption that a transaction in a bank branch looks in some way like a transaction at a Canada Post outlet. Maybe 40 years ago that might have been closer to being correct. The challenge now is that most of the transactional part of a banking relationship has moved outside of the branch. If I'm doing a regular banking transaction, then chances are I'm doing it online, or I'm doing it on an ABM, or I'm doing it with some other mechanism. What's happening in the branch is typically a more involved transaction. It is likely financial advice, such as the negotiation of a sale of a complex financial product.

All of this is to say that interaction takes longer now than it would have some time ago.

The question you have to think about is what the implications are of moving that into a Canada Post operation that's then trying to, at the same time, efficiently deliver the mail.

[The Chair, Conservative, Tom Lukiwski]

We will go to Monsieur Clarke.

You have five minutes.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Thank you, Mr. Chair.

Good afternoon, everyone. Thank you for being with us this afternoon.

I am going to continue with you, Mr. Hannah, on the issue you have just raised. In Canada, at this time, what is the proportion of applications coming from students who are looking for work, as compared to the number of positions on offer in the banking sector? Are there any data on this?

I'm going to word the question in another way.

How many applications do you receive from people looking for work in the banking sector, as compared to the number of positions available?