Industry Committee on Oct. 21st, 2024

[Jean-Denis Garon, Bloc, Mirabel, QC]

Like all the other bankers who have come here, you haven't answered my question.

As I understand your argument, in other countries where interchange fees have been regulated, bankers who were ripping off their customers in this regard have started ripping off their customers elsewhere. They should therefore be regulated even less, so that they continue to rip off their clients as they did before.

Is that how you want to convince a parliamentary committee not to regulate fintech? Do you think this is a winning communications strategy?

[Alexander Vronces]

I don't think a winning solution is pro-fintech or pro-bank. It's pro-consumer and what consumers need. What Canadians need right now are lower fees and more productivity. The financial sector, right now, the way it's structured, is a drag on Canadian productivity. It's a drag on affordability. If you are a small business, it's very hard to access a loan. If you can access a loan, you're paying more for it than many of your peers in other jurisdictions. To a greater extent, you're also required to pledge personal collateral, like your house. The loans are very expensive.

We can't grow this economy if we're not investing in our businesses. By making banks work harder for their customers, and by letting new fintech entrants into the system to put competitive pressure on banks, we'll generate better outcomes for consumers and merchants. If we go the other route and regulate interchange fees, we'll generate a bunch of unintended consequences like we've seen around the world.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Garon.

Mr. Masse, you have the floor.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

To Equifax, I want to follow up with one of the issues I've raised, the treatment of Canadian consumers.

In 2017, with the Equifax breach of privacy, I think there were 19,000 Canadians the Privacy Commissioner identified who had their privacy breached through Equifax's negligence. What did those Canadian consumers receive?

[Julie Kuzmic]

That cybersecurity incident that occurred seven years ago in 2017, as you pointed out, did affect approximately 19,000 Canadians. Those Canadians were offered assistance with credit monitoring in order to keep an eye on any potential evidence of their identities being used. In the seven years since that incident occurred, Equifax has invested over one and a half billion U.S. dollars to rebuild our technology and security infrastructure.

Today, there's little, if any, of our old security program that remains. It's been completely overhauled. One of the things that, as an Equifax employee, I am most proud of, is that we believe that cybersecurity is not a trade secret. Our head of information security, a gentleman by the name of Jamil Farshchi, has been invited to be a strategic adviser to the FBI because of all of the positive work that has happened at Equifax. We are very open with our competition and other players in the industry, believing that if we can be stronger together as a unit, then we're serving everybody's purposes. We do not need to be hiding from each other how we're protecting people's data.

[Brian Masse, NDP, Windsor West, ON]

The U.S. Federal Trade Commission included a $425-million settlement to citizens. We had to use a class action lawsuit over here because we don't have the same systems in place or protections for consumers.

What did American citizens receive for the loss of their privacy, which was consistent with Canadian and U.K. citizens?

[Julie Kuzmic]

I'll have to go from memory a bit here, as I don't have the specifics in front of me. I believe the amount of money that was designated as part of that overall settlement was divided by the number of people who met the qualifications to be a part of that group. That resulted in certain amounts of money being transferred to impacted American consumers.

[Brian Masse, NDP, Windsor West, ON]

I appreciate you dealing with that because I think it's important for looking at the protection of consumers, especially if we need watchdogs or analysis from independent groups and organizations. That's the challenge also under the cybersecurity threats, ensuring that it's done properly and so forth.

Thank you for those answers.

Thank you, Mr. Chair.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Masse.

Mr. Généreux, you have the floor.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chair.

Mr. Vronces, you said earlier that the government hadn't held enough consultations on the agreement with all credit card companies.

What do you think the consequences are of this lack of consultation?

[Alexander Vronces]

It's a great question. I do think they probably underconsulted. Like I said, we, as an association, were not consulted. We didn't have a chance to provide our perspective on how to best achieve the government's goals. I think the effect of this has been a policy that isn't achieving the results the government wanted to achieve. Like I said, you can't affect the overall price of something by micromanaging a tiny component of that price.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Basically, you're saying that the government didn't do enough consultation, so we find ourselves today in the situation you described to my colleague Mr. Perkins. Costs may have gone down in part, except that, because the government did not hold enough consultations, it was not able to get an overall picture. Stripe, for example, said that it wasn't going to lower its fees, and that it might even increase them. As a result of the additional costs, the fees for its services are increasing. At the end of the day, there will be no real gains.

The funny thing is that the Prime Minister posted about this on X a few minutes ago. I'll bet you $100 I won't find it, but he basically says that his government is very proud because, when you buy a coffee at Tim Hortons or elsewhere, it's important that the money go into the pockets of SMEs. However, based on what you said, that's not necessarily what will happen.

[Alexander Vronces]

I didn't get a question in the translation.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Essentially, the Prime Minister just published a message on X saying that he's happy that his government has reached this agreement with the various partners so that SMEs receive more money when consumers buy a coffee, for example.

However, am I to understand from what you've just told us that this isn't necessarily what will happen?

[Alexander Vronces]

Sure. In some cases, depending on the pricing the merchant chooses, there may not be a change in the price. Therefore, yes, there are nuances here that might be missed in some of the more political communication around this.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

You also said that a number of places in the world had regulations that made it possible to have an open banking system. This makes it possible to offer services directly to the public, in a more efficient way than what we experience in Canada, and promotes competition.

Can you name some of those countries?

[Alexander Vronces]

Thank you for the question. For sure, I can.

In the U.K., they have a real-time payment system and open banking. One of our members is a global fintech company. When the U.K. modernized its payment system, it gave fintechs access to it. The moment they integrated into that system, they were able to cut their average cost of payment by 20%. That was just immediately upon connecting, and they were able to decrease the speed of the movement of funds to seconds. It happened in real time, more or less.

The cost of an open banking payment is also a fraction of the cost of a credit card transaction from the merchant's perspective. This is also something that exists in Europe and in Australia. Canada is one of the only advanced economies not to have made progress on these things yet.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

However, the government announced in its budget—if not this year, it was last year—that it was going to set up an environment to offer open banking in Canada.

Do you think the government has met that expectation?

[Alexander Vronces]

We're obviously happy that it's happening. It wasn't too long ago when many in the sector thought it wasn't going to happen at all, despite all of the consultation and the years and years of conversation.

I think some of the excitement will be muted, though, because, as I said in my opening remarks, on day one, this will just allow Canadians to share their data. It won't allow Canadians to authorize someone else to initiate a payment on their behalf, either by pushing the payment out or by pulling the money from one account into their own.

That payment capability that is turned on in other jurisdictions, like the United Kingdom, allows a merchant to encourage their customer to pay with something other than a credit card. Therefore, in addition to being able to surcharge, you'd be able to partner with fintech and get money the way you want to and on the terms you want.

In Canada, that is not going to be an option on day one, and it's not clear that it will ever be an option, unless the scope of open banking is expanded.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Généreux.

Mr. Turnbull, the floor is yours.

[Ryan Turnbull, Liberal, Whitby, ON]

Thanks very much.

Thanks to all of the witnesses for being here today.

Ms. Kuzmic, I have a couple of questions for Equifax. One of the questions I have is about credit card delinquencies and the trends you've seen from the data you collect.

Could you update us on what trends you see in terms of delinquencies, maybe over the last couple of years leading up to the first quarter of this year?

[Julie Kuzmic]

Thank you for the question. I'd be happy to.

When we look at these aggregate numbers across Canada and we speak in percentages about delinquent accounts, it's very easy to feel a separation from what these numbers actually represent. I want to acknowledge that struggling to make payments and having to decide between buying food or paying rent is not a situation anyone wants to find themselves in. These numbers represent actual people across Canada who, I believe, are generally trying to do their best with what they have.

I'll start by focusing on the numbers that Equifax released last month, reflecting the second quarter of this year. In other words, we're looking at the time period of April, May and June of 2024.

I will also highlight that data science is an exact science with many nuances. For example, we'll look at two measures reflecting credit card use in Canada and how much of the balances people have actually been paying off on their credit cards.

We'll start by taking a look at what we call the balance delinquency rate. This figure is derived by adding all the credit card balance amounts that were owed during the period. In this case, the period is April, May and June of this year. Then we look at how many of those dollars were overdue during that period. Overdue is defined as being 90 days late or worse than that. By that measure, 3.4% of the owed balances were delinquent during the second quarter of 2024.

Looking at another measure called the trade volume delinquency rate, this is where we count the total number of active credit card accounts during the period. Again, it's still the second quarter of this year. How many of those credit card accounts were overdue? Again, that's 90 days past due or worse during the time period. According to the Equifax data, the total number of credit card accounts is somewhere in the neighbourhood of 52 million in Canada, and about 1.6% of them were delinquent during the second quarter of this year.

This is a great example of how critical the nuances are. Is Equifax saying that the rate of overdue credit card payments in Q2 is 3.4% or 1.6%? The short answer is yes.

[Ryan Turnbull, Liberal, Whitby, ON]

Yes, meaning both are true—

[Julie Kuzmic]

Yes.

[Ryan Turnbull, Liberal, Whitby, ON]

—because you're using two different units of measure. I got that.

Is that down or up from the previous quarter of 2023?