Industry Committee on Oct. 7th, 2024

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

All right.

How many other countries do you guys have data centres built in, or I guess knowledge centres, cybersecurity centres? How many other countries have you built in?

[Balinder Ahluwalia]

Canada was the first, and it's the only cybersecurity centre of excellence. We have others, but Canada was the first.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Have other countries pitched you on building one in their countries?

[Balinder Ahluwalia]

I'm unsure. I can get back to you.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Okay. If the answer is yes, can you see if their governments were offering you money as well?

[Balinder Ahluwalia]

I can certainly get back to the clerk and you on that.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Okay. Thank you very much.

[The Chair, Liberal, Joël Lightbound]

You're out of time, Mr. Patzer.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Out of time...? Okay.

[The Chair, Liberal, Joël Lightbound]

Thank you.

MP Van Bynen, the floor is yours for five minutes.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Thank you, Mr. Chair.

I'm trying to sort out the transaction and the costing of the transaction as we go through.

Mastercard and Visa, all you do is take the transaction and the portfolio is managed by the banks. Is that correct? They get the rate of return, etc. Okay.

I'm hearing about this 0.95% average fee. Is that for every transaction? If I was to pay with my Visa card $100, 95¢ would go to who?

[Martin Leman]

The bank that has issued the card.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Okay.

I'm trying to understand the increased cost from the bank's point of view if I charged $100 or if I charged $1,000. Why would I pay $9.50 for one transaction and 95¢ for the other?

[Darren Hannah]

Well, from the bank's point of view, bear in mind that this is credit. I'm extending unsecured credit to a customer for a period—from the point of purchase until the end of the grace period. As a consequence, the transaction is greater. Likewise, the fraud risk is greater. I am making the customer whole in the case of any fraud liability.

There is a risk associated with all of this, because it is ultimately a credit product.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Am I more likely to be fraudulent if I were to pay $1,000 for something rather than $100?

[Darren Hannah]

No, the bank has a certain amount of exposure.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

We can come back to that. It's the risk-based pricing of the transaction.

The last I saw is that the prime lending rate was 2%, which is prime plus two. This may or may not be an average lending rate on your portfolio. However, I see that the credit card average rate is 28.2%.

Is that the risk we're paying for? Is that the risk factor?

[Darren Hannah]

Let me say two things.

One, I don't think that's actually the rate. That sounds awfully high.

Two, let me go through and explain the mechanics of credit card pricing, because it's unique.

Credit cards are a couple of things. Obviously, they are unsecured products, which we discussed, available to 89% of Canadians and activated at the point of sale in real time. They're widely available. That's part of the pricing. Part of it, as well, though, is regarding the unique properties credit cards have relative to other credit vehicles. They're the only ones that have an interest-free component—71% of Canadians pay their card off in full every month. For that, the bank is providing free credit to a customer from the time of purchase through to the end of the grace period. That is a cost of funds to the institution. In addition, the credit card, unlike every other credit product, has an entire point-of-sale activation system: real-time fraud monitoring, real-time protection against liability and 24-7 customer support.

All of that is part of the unique value proposition that comes in the card.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

However, none of that changes with the value of the purchase transaction. Does it?

[Darren Hannah]

What it does is change the cost of managing the product for an issuer, as opposed to just providing you with a line of credit.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Okay.

Do you know what the average rate of arrears is for your portfolio, other than mortgages and credit cards?

[Darren Hannah]

I don't have that with me. I'm sorry.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Okay.

My concern is that you're saying your arrears rate was 1.6% and you mentioned—

[Darren Hannah]

It is for cards. That's correct.

[Tony Van Bynen, Liberal, Newmarket—Aurora, ON]

Why is it that we have such a high price at prime plus 20%?