Industry Committee on Oct. 28th, 2024

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Allow me to express my support for your comments, Mr. Chair.

I will now reiterate my question.

A number of stakeholders, particularly in the area of fintech, told us that a cap on interchange fees would be indirectly circumvented by banks and credit card issuing companies, who could simply increase other fees.

Would you agree with that?

[Ramesh Siromani]

No. I'm not aware of any getting around by the banks.

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Actually, my question used the conditional tense.

Can you list all the fees that are charged to merchants when a credit card is used?

[Ramesh Siromani]

When a transaction happens, it can differ in different places. It can be an online transaction. It can be a transaction at a store. It can be a transaction at a big store or a small store or with a different type of card. It can be a tap. It can be through various methods and forms of payment.

It depends on what kind of transaction it is. I wouldn't be able to tell you exactly what it is. It depends on the transaction. It depends on the form of payment. It depends on the mode of payment and where it is made. It could be a domestic transaction. It could be a cross-border transaction.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Savard‑Tremblay.

Mr. Masse, you have the floor.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

One of my recommendations that I'm looking to move in this committee is to require a regulatory change to report earnings quarterly from credit card products. Is there anybody on the panel here who would oppose that recommendation?

I'll leave it up to you to speak up now, or I'm going to assume there is consent and that recommendation would be supported.

[Ramesh Siromani]

I'm not in a position to talk for our investor relations in a broader enterprise. It would have financial ramifications on how we divulge information to the investor community. I wouldn't be able to comment on that, but I'm sure there would be some comments from them.

[Brian Masse, NDP, Windsor West, ON]

Yes, it would have some financial ramifications for the benefit of consumers, I know, and transparency.

Is there any problem with any of your organizations providing more information about the type of customers and the products that you serve in terms of the interest rates? Would that be something which the five banks that are represented here would be willing to do? Could you provide us with statistical profiles of the people, in a general sense, using the different percentages of the credit cards like 19% and so forth? Is that something that could be supported in terms of more financial literacy to consumers?

Okay. Well, thanks, Mr. Chair. I appreciate my time, and I have the answers I need.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Masse.

I'll now turn it over to Mr. Généreux.

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

Thank you, Mr. Chair.

Thank you to the witnesses. I'm going to start with Ms. Douglas from BMO.

I have a small business with five different services, and for each of those, we can determine what generates profits and what does not. We make adjustments based on what the business community commonly refers to as the cost of doing business. I imagine it's the same with banks.

All the witnesses today have said that they were unable to determine how much profit credit card transactions generate, because they weren't able to extract that information from their general figures. That seems rather strange to me. Honestly, I find it very hard to believe that they aren't able to extract data as simple as the net profits generated by credit card transactions, based on revenues and expenses.

Can you explain why it's impossible to access those numbers? That is the case at BMO, but also elsewhere, in all Canadian banks, it seems.

[Jennifer Douglas]

We do, as a bank, disclose many, many metrics on a quarterly basis that are public. Our policy is not to disclose to the public down to that granular level.

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

Why don't you do that?

[Jennifer Douglas]

It's from a competitive perspective. Like I said, I'd be happy to send you our last quarterly results and our annual report. You'll see there's a myriad of metrics that we do disclose, but we usually don't go, from a product perspective, down to that level.

Our numbers are found within our division, the personal and business banking.

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

In that case, are you able to provide the information to the committee?

I'm asking all the witnesses here, but you can probably answer for the others, Ms. Douglas, since you all seem to have the same policy.

From your overall numbers, are you able to extract the revenue and expenses related to credit card transactions, as well as the resulting profits, and provide those figures to the committee? Our committee is independent, as I understand it, and we can handle these numbers confidentially.

Is each of the banks able to provide that information to the committee, so we don't have to do that work ourselves?

[Jennifer Douglas]

As I mentioned, we have a certain policy for disclosures, so I wouldn't be able to commit to your request in this forum today.

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

Ms. Ferri, is CIBC able to do that?

[Diane Ferri]

I am not able to provide those. As I mentioned earlier, the numbers related to our credit card business are not individually disclosed, which is consistent across the industry.

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

I'm trying to understand why you're not able to extract that data or share it with the committee. We're not interested in disclosing this information publicly, but we must be able to assess the excessive profitability—in our opinion—of these transactions.

As my NDP colleague said earlier, together, all the banks in Canada make $67 billion. I don't know if I understood correctly. If that's the case, I imagine that the credit card fees or the interest rates you charge are largely responsible for the profitability of your banks.

It would be important for the committee to have that information extracted from your overall numbers and forwarded to the committee. I am therefore making a request to the committee. I'm asking that all the witnesses present provide us with data—unredacted, of course—indicating the profits that credit cards generate for each of the banks.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Généreux.

I think there's consensus around the table to try to obtain that kind of information. With the help of the clerk, we will prepare a letter that we will send to today's witnesses to formally request that they send us that information.

Thank you, Mr. Généreux.

I now give the floor to Mr. Gaheer, who is joining us by video conference.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Thank you, Chair.

Thank you to the witnesses for appearing.

I want to focus on interchange rates, which are the fees charged by the card issuers for the transaction. They're obviously set by the credit card companies. We've heard that throughout this testimony and in the testimony of Visa and Mastercard as well. Again, these are the fees charged by the card issuers, and a percentage of them is obviously kept by the card issuers themselves.

We had Mastercard appear before committee a few meetings ago. They said:

We set interchange to maximize participation—for our banks to make cards available and for merchants to accept them. Our priority in setting rates is to maintain a balance.

Mastercard does not receive interchange revenue. Were it left to merchants, they would want the benefits of card acceptance without paying for it, but that would make card issuance unattractive to banks. Were it up to the banks, they would want high interchange to maximize revenue, but then merchants would not want to accept the cards.

I found that testimony to be a bit disingenuous, because we know that merchants, obviously, will pass on a large percentage, if not all, of the cost of interchange fees to their consumers, the customers. When we look at banks, again, I don't want to hear in testimony that you don't set the interchange fees—we know that to be true—but I'm looking at the statement that Mastercard made about incentivizing banks to be card issuers.

We've heard in testimony that 1.4% is the average interchange fee that's charged. Obviously, that can vary across different products and different banks. What I wanted to ask of the different banks—and we can go in order of the initial speaking order—is this: Do you feel as though the interchange fees could be lowered and card issuance would still be attractive for the banks to engage in?

[Jennifer Douglas]

I believe Mastercard made the comment about incentivizing banks because, as I had mentioned previously, to run a credit card business is expensive. We have multiple costs in fraud, systems, rewards, digital, etc.—

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

I don't want to interrupt you. I'm sorry to be rude, but we have a short amount of time.

I just want to know if you feel that interchange fees could be lowered and card issuance would still be attractive in Canada.

[Jennifer Douglas]

If you look at the voluntary commitment that the government and the payment networks have done, they've done three of them in the past decade, and we've seen interchange rates come down. Even this month, there's another one going in that's going to help the majority of small businesses.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

I want to ask the other banks the same question.

Do you feel that interchange rates could go down and card issuance would still be attractive?

[Diane Ferri]

I would say that would be a forward-looking statement, and I would be unable to comment on that.