Industry Committee on Oct. 28th, 2024

[The Chair, Liberal, Joël Lightbound]

Happy Monday, everyone. I call this meeting to order.

Welcome to meeting number 142 of the House of Commons Standing Committee on Industry and Technology.

Before we begin, I would like to ask all members and other in-person participants to consult the small card on the table for guidelines to prevent audio feedback incidents. This is for the health and safety of the interpreters as well as everyone in this room.

Pursuant to the motion adopted on Thursday, September 19, 2024, the committee is resuming its study on credit card practises and regulations in Canada.

We are pleased to welcome today's witnesses, who are all participating in this meeting by video conference.

First of all, from the Bank of Montreal, we have Jennifer Douglas, who is head of North American retail and small business payments.

From the Canadian Imperial Bank of Commerce, we have Diane Ferri, senior vice-president, credit cards.

From the Royal Bank of Canada, we have Ramesh Siromani, executive vice-president, cards, payments and transformation.

From Scotiabank, we have D'Arcy McDonald, senior vice-president, payments and unsecured lending.

From TD Bank, we have Meg McKee, executive vice-president, Canadian card payments, loyalty and personal lending.

I want to welcome you all and thank you for taking part in this exercise.

Without further ado, I give the floor to Jennifer Douglas, from the Bank of Montreal, for five minutes.

[Jennifer Douglas, Head, North American Retail & Small Business Payments, Bank of Montreal]

Good afternoon, everyone.

Mr. Chair and honourable members, thank you for the invitation to join you today as part of the committee's study on credit cards.

My name is Jennifer Douglas, and I am responsible for BMO's credit card business.

As Canada's oldest bank, BMO has long been committed to working with our customers to identify their specific needs and to ensure that they have the best product options for their personal situations. This work with customers is done in tandem with continually evaluating our product features on an ongoing basis to ensure that they remain competitive in the industry. It is worth underlining just how competitive the landscape is for credit cards and the resulting breadth of benefits for consumers.

For those consumers who want to take advantage of a credit facility to make purchases, this means ensuring access to no-fee and low-fee options, which constitute over half of BMO's card portfolio. We know from our customers that they greatly value credit cards as a method of payment, given the benefits and the convenience provided, whether it's protections against fraudulent transactions, whether it's cashback or travel rewards, or whether it's extra features, such as insurance or roadside assistance. We are always seeking ways to enhance our benefits.

Some of the recent examples of enhancements that we've made to benefit our customers are extra bonus points for shopping in certain categories, like wholesale clubs and drug stores; new features to get cashback on gas purchases; new redemption options, such as being able to shop at the Apple Rewards Store; and enhancing the customer experience through greater digital self-serve options.

We offer these services within a highly regulated framework. Banks work diligently to clearly communicate fees, transactions incurred on a card, and when the payment is due, among other pieces of information.

As issuers of credit cards, banks do not set interchange fees. As I believe the committee has heard, these fees are set by payment networks, like Visa and Mastercard, which, along with the card issuers, the acquirers and the merchants, comprise Canada's credit card payments ecosystem.

Our role as issuers in this ecosystem focuses on things like adjudicating credit applications, interacting with customers and servicing their needs, paying for transactions on behalf of the customer to ensure that the merchant gets paid, covering fraudulent transactions and credit losses, and competing with other issuers to provide meaningful benefits and features for our customers.

However, credit card services should not be viewed in isolation as just a product offered by the bank. We also ensure that our customers have access to resources to improve their financial literacy in order to make the choices that suit their needs best. Through a survey that BMO conducted last year, we know that this is particularly important in a digital banking context. In that survey, we found that 58% of Canadians find literacy an important aspect of online banking, and 65% want access to personalized advice.

At BMO, we are committed to leading with a digital-first mindset, and we're proud of our BMO SmartProgress financial literacy online portal as a proof point of that. The BMO SmartProgress portal organizes topics such as budgeting, credit management and preparing for retirement, enabling Canadians to learn more about how to manage their finances in a widely accessible and innovative environment.

Thank you for your attention. I would be pleased to answer your questions.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Ms. Douglas.

I now give the floor for five minutes to Diane Ferri, from CIBC.

[Diane Ferri, Senior Vice-President, Credit Cards, Canadian Imperial Bank of Commerce]

Thank you, Mr. Chair, and good afternoon.

My name is Diane Ferri, and I'm the senior vice-president of cards at CIBC.

Our bank traces its roots back to 1867. Since Confederation, we've been an integral part of helping Canadians achieve their ambitions. Today we have more than a thousand banking centres in Canada.

Our team of over 47,000 operates with the single purpose of helping our clients make their ambitions real. This is true for individuals, families, students, newcomers and businesses. It's also true for the millions of Canadians who have investments in our bank, either directly by holding shares or indirectly through mutual funds and pension plans, and for the many community initiatives we support.

We strive for a culture of operational excellence, enabled through our talent, technology and processes, and we comply with legal and regulatory requirements.

Credit cards are one of the most competitive offerings in the financial services industry, issued by a wide range of banks, credit unions, monoline issuers and retailers.

Consumers have many choices as to how to make their payments. Cash, debit and credit are amongst these choices, and our role as a bank is to help facilitate those payments in whichever manner our clients choose to make them.

Credit cards are the payment method of choice for many consumers, offering customers flexibility and convenience for managing their cash flow and purchasing online and at the retail point of sale. In a world increasingly shifting towards digital and global commerce, credit cards allow consumers to shop online and internationally with ease, convenience and confidence.

Credit cards play a key role in the Canadian economy. Businesses benefit from their use, receiving immediate and secure payment instead of taking on credit risks themselves, and they enable faster checkout lines and lower cash handling costs.

In addition, credit cards provide benefits such as rewards, insurance and liability protection for fraud and merchant-disputed transactions. Youth, students and those who are new to Canada can use credit cards to establish and build credit.

CIBC offers 25 different credit card options, which we offer in the context of a broader relationship with our clients to meet their full financial needs. Our cards range from no-fee and student cards to loyalty options based on the clients' preferences, including cards that offer rewards. CIBC offers a low interest rate card, a product that was recently recognized in a report by The Globe and Mail as number one in its category.

CIBC complies with transparent sales practices in banking centres and on digital platforms. Our credit card selector tools assist clients in identifying the best product based on their needs and preferences. This puts informed choice in the hands of our clients as they select the card that best meets their needs.

We offer a range of no-charge tools for our clients, including free credit score lookup, credit bureau alerts and a budget and cash flow calculator.

We've leveraged innovation to bring more options to our clients to manage the cost of larger purchases. Our CIBC Pace It feature allows clients to pay off larger or unexpected purchases on their credit card at a pace that works for them, with a lower interest rate. There is no restriction on paying the balance off early. It's another example of putting informed choice in the hands of our clients and giving them tools to have control over their credit.

We have educational tools, including our credit card 101 guide, to help clients learn about how to manage their credit, how to choose the right card, how to read a credit card statement and how to protect themselves from potential fraud. We provide easy-to-use features in our online banking for clients to protect themselves if their credit card is stolen and to stay on top of their transactions.

Credit cards, like other consumer bank products, are overseen by the Financial Consumer Agency of Canada, or FCAC. The FCAC supervises federally regulated financial entities and monitors and supervises the payment card networks with the requirements set out in legislation, regulations, public commitments and codes of conduct. The market conduct obligations that apply to credit cards are detailed and address several matters, including clear disclosure of all applicable rates and fees to consumers.

We recognize our clients have a choice in how they choose to make their everyday payments, and we work hard in a competitive market to meet their needs by offering value, convenience and choice, with additional benefits and protections available to protect against fraud and other risks.

In conclusion, CIBC is proud to help Canadians achieve their ambitions, including providing many options for their banking and credit card needs.

I look forward to our discussion today.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Ms. Ferri.

I now give the floor to Mr. Siromani, from the Royal Bank of Canada.

[Ramesh Siromani, Executive Vice-President, Cards, Payments & Transformation, Royal Bank of Canada]

Thank you, Chair.

Good afternoon, honourable members. Thank you for inviting RBC to appear this afternoon in front of the committee.

My name is Ramesh Siromani. I'm the executive vice-president for the cards, payments and transformation businesses at RBC.

We at RBC are guided by our purpose to help clients thrive and communities prosper. We live our purpose each day by offering trusted advice to help clients make informed financial decisions, while driving positive change in the places where we work and live.

We are focused on offering a wide range of everyday banking, financing and investment products to meet the needs of our clients at every stage of their lives. Canadian customers are at the heart of our business, and it's our priority to offer value, convenience, choice and information to help clients determine the products and services that are right for them.

Our payments business is no different. As you would have heard from the Canadian Bankers Association earlier this month, Canadians like having access to a range of payment products, including credit cards, which offer a secure payment option with liability protection and other features such as insurance, purchase security and warranties.

We offer a broad range of payment options to clients, along with tools and advice to help them select the right product for their needs. Canada has a well-developed payment system, with credit cards playing an important role. Whether clients are looking to earn cash back on everyday spending, collect reward points, or enjoy student life affordably, RBC offers credit card options for all of those needs and more. Once clients have selected the appropriate card, we offer a wide range of resources online and in our branches to help them manage their cards responsibly.

We provide those tools and alerts to help clients manage their credit cards, ensuring that they feel secure, aware and well connected to their finances. RBC has a process to help clients understand the implications and options associated with any lending product, and we proactively reach out to clients to discuss options through our digital channels, emails, letters, our contact centre and branches.

RBC is proud to offer value to all Canadians through Avion Rewards, regardless of where they bank. Avion Rewards operates as a loyalty and customer engagement platform that provides members with the flexibility to shop, save, earn and redeem on everyday items.

The program provides many benefits, including strategic partnerships with leading brands in Canada such as Petro-Canada, Metro, Rexall, DoorDash and others that provide RBC credit and debit cardholders more value on their everyday purchases, like instant savings on gas.

Similarly, we offer a variety of solutions to our merchant partners. By providing more choice and convenience in credit products to clients, we help drive success for merchants, who derive great value from credit card payments including guaranteed payment, access to the online marketplace, efficiencies compared to cash or cheques, and at the most basic level, not having to run a store credit system.

Finally, we have seen an increase in fraud and scams in Canada, which has affected all industries. Safeguarding the security of our systems and the confidentiality of our clients' information is always our top priority. As a trusted financial institution, we have an important role to play in prevention, education and ensuring our client's safety. We know fraudsters are getting increasingly sophisticated, and we continue to make substantial investments in our security measures and technology. We also regularly educate our clients about best practices, like staying aware of fraud scams and protecting passwords and email accounts.

RBC has a long track record of innovation in payments. Through industry efforts, Canadian merchants and customers enjoy a low-cost to no-cost debit network for purchases and Interac e-transfers, with those being the leading money movement capabilities globally.

RBC has delivered numerous client experiences in innovations like tap, pay with points, and installment payment plans, offering more choice, convenience and security to the client. Canada has a strong, secure and efficient payment system, and RBC continues to invest and innovate to ensure it continues.

We remain committed to providing value, choice and convenience to clients and merchants, while providing education and advice around financial literacy, fraud and the responsible use of credit.

Thank you, members, for inviting me to speak today. I welcome any questions you may have.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

I'll now give the floor to D'Arcy McDonald, from Scotiabank.

[D'Arcy McDonald, Senior Vice-President, Retail Payments & Unsecured Lending, Scotiabank]

Good afternoon.

My name is D'Arcy McDonald, and I'm the senior vice-president of retail payments and unsecured lending for Scotiabank. I'm pleased to participate in this important study and look forward to the discussion today.

Scotiabank has almost 200 years of history in supporting Canadians with their financial needs, employs 40,000 people in Canada and serves more than 11 million clients from coast to coast to coast. We take our role as an important pillar of the Canadian economy seriously. We're also a leading bank across North America, including a top ten foreign bank in the United States and the fifth largest bank in Mexico, with additional market-leading presence in the Caribbean and Latin America.

At Scotiabank, our credit card offerings are part of our overall portfolio of products and services available to both individuals and small businesses whose banking needs we serve everyday. Our array of credit cards provides secure payment mechanism, fraud detection, liability protections and, depending on the card, rewards for purchases. We are proud to provide cards that offer both consumers and merchants protection when they use a card for payment.

In addition, our cards help those with no or low credit to build their credit rating, helping them to then qualify for loans and mortgages and to make purchases for products where credit is critical.

Our goal at Scotiabank is to build relationships with our clients and ensure that they have the financial products they need and the products that work for their individual circumstances like credit cards, chequing accounts, investment accounts and/or mortgages. This is an important part of our overall strategy to act as the primary banking partner for our customers. Credit cards are often alongside other products and provide clear and substantial benefits.

Canadian consumers see credit cards as a secure and convenient tool to pay for everyday household purchases, travel and a range of other expenses. Scotiabank offers a variety of consumer and small business credit cards suitable for a variety of customers according to their interests and needs so that clients can select the best cards for their lifestyle. We work hard to ensure that the features, services and benefits, including rewards, reflect what our individual consumers and small business customers are looking for in credit cards.

We give customers choice. Examples of the choices we provide to our personal and small business customers include cards that offer low interest rates; cards that offer no or low annual fees; cards for students and new Canadians; cards for travellers with no foreign exchange and other benefits like insurance coverage; cards that offer cash back on purchases and cards that offer Scene+ points that can be redeemed for groceries, travel, gift cards or movies. This flexibility is a critical part of our commitment to ensuring that we provide the right cards to the right customers from both a business perspective but also from a risk perspective.

At Scotiabank, we pride ourselves on the close relationships we have with our small businesses. We work with them to understand their business banking needs and provide relevant advice, tools, products and services to help their businesses thrive. We offer cards that help small businesses manage their daily expenses, enabling them to separate personal and business expenses, which simplifies tax accounting and helps with spend management and cash flow prediction. I mention this to point out that our customers are savvy users, and they use these tools to access multiple benefits from their credit cards. Both our individual and our small business customers use credit cards as a payment tool rather than a credit vehicle if it works for them as appropriate and/or their business needs.

Finally, I want to speak about a topic that we know is top of mind for Canadians and for our credit card customers: fraud and cybersecurity. As we continue the rapid evolution to more digital platforms, it is more important than ever to have robust systems to ensure that payment systems and consumer data is secure. In Canada, fraud has increased since the pandemic. The increase in fraud has impacted our clients and had a significant cost to our businesses. Scotiabank vigorously invests to monitor and protect our customers and businesses from fraud. Each year we spend tens of millions of dollars specifically to manage credit card fraud from the moment someone applies for a new card to how it is used for transactions online and in person.

I'd like to close by emphasizing two points. First, credit cards are a secure form of payment that enable retailers to facilitate payments in real time without taking on credit risk. These payments happen seamlessly, both in store and online, because of investments made by the wider ecosystem as we innovate to provide better services. We do not take those benefits for granted.

Second, Scotiabank and Canadian banks more broadly are heavily regulated compared to other institutions in the wider credit card and payment ecosystem. Aside from the code of conduct, rules set by OSFI, the FCAC, the Competition Bureau and the Bank of Canada, we reinforce the security of our credit card businesses for consumers. When customers use a credit card by a licensed bank in Canada, they have important rights and responsibilities that are protected by those rules and regulations. At Scotiabank, we are proud of our credit cards that offer peace of mind to our customers from coast to coast to coast.

Thank you for your time today. I look forward to answering your questions.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. McDonald.

Finally, I'll turn it over to Meg McKee from TD Bank.

[Meg McKee, Executive Vice-President, Canadian Card Payments, Loyalty and Personal Lending, TD Bank Group]

Thank you, and good afternoon.

My name is Meg McKee and I am the executive vice-president, Canadian credit card payments, loyalty and personal lending at TD. I am pleased to be with you today to represent TD where I have been leading Canadian credit cards since I joined in early 2022. Prior to joining TD, I spent 20 years with Amex Canada.

During my time working in Canadian credit cards, there have been important evolutions and changes in the competitive dynamics of the Canadian credit card market. First, from a consumer's perspective, over time there has been an ever-increasing number of credit card types available, which have their own combinations of features and benefits for consumers. Canadian consumers have very healthy competition in the credit card offerings that are available to them.

TD is a major credit card issuer in Canada. We are proud of our offerings, which include partnerships with Amazon, Starbucks, Aeroplan and Expedia, as well as through the My TD Rewards platform.

There have been multiple rounds of public policy discussions led by governments about credit card acceptance fees and interchange rates over the past two decades. These discussions, under governments of different stripes, have focused largely on reducing card acceptance costs for merchants. As the committee knows, interchange and assessment fees are set by the credit card networks and not credit card issuers like the representatives of the banks that are before you today, which is why it was very appropriate that the first companies that this committee heard from were the credit card networks that set the rates in question.

Canada's credit card ecosystem is important to individual Canadians, to merchants and to its financial ecosystem participants. I look forward to the opportunity to discuss this ecosystem with you.

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

To start the discussion, I'll turn it over to MP Rempel Garner for six minutes.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Thank you, Chair.

I'll direct my questions to Mr. Siromani from RBC.

Is it true that Interac charges between six cents and 43¢ per Interac e-transfer sent to your banks for facilitating the service, which is a tiered model depending on the volume of annual transactions to your institution?

[Ramesh Siromani]

Thank you for the question.

The customers who use e-transfers use it free of cost. Interac—

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

I'm asking how much they charge you. The fee schedule I've seen is a tiered model that is between six cents and 43¢, depending on volume.

Is that about right?

[Ramesh Siromani]

Interac, as a service provider for e-transfers, would charge every institution. I'm not sure of the exact method or mechanism of the pricing. They would have a charge for using the system.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

How is it that you don't know? You're the head of banking for card services and payments for RBC and you're on Interac's board.

Maybe we'll just start by saying it is a tiered service or a tiered pricing model.

Is 43¢ for the highest tier—let's work with that—about right?

[Ramesh Siromani]

I wouldn't know that, ma'am.

What I would be aware of is that any service like this that has volumes involved would have a system where institutions passing on large volumes would have a better unit cost associated with large volumes of the service provided.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Great. Let's start there.

According to your website, you charge clients approximately a dollar—between one dollar and $1.50, depending on their plan—if they go over their plan for the number of transactions for e-transfers.

Is that right that you'd be charging a client between one dollar and $1.50 depending on their plan, if they were on a pay-for-use plan or if they went over their prescribed amounts?

[Ramesh Siromani]

We have various plans, but all e-transfers that we provide for our customers are free of charge. We do have various plans on accounts that are provided to our customers that can range—

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Where I'm going with this is I've seen a fee schedule that shows that at the best or the most expensive, Interac is charging you 43¢ a transaction, but you're charging your clients anywhere between one dollar and $1.50 a transaction. That's obviously a big profit margin.

Interac is owned by you and the other banks, so you're making profit off of the e-transfer fee that you're charging to your clients. Interac is making money off of what you're paying them, and you just admitted that there is a tiered pricing model.

Now, the tiered pricing model that I've seen really charges a lot more to smaller institutions, so whereas you might be paying six cents—that's what I've seen for a transaction—a smaller institution might be paying somewhere in the neighbourhood of 43¢.

Has the competition commissioner ever asked Interac or any of your banks why this is?

[Ramesh Siromani]

There are a couple of things I would mention.

Any processing cost associated with volumes, whether it is credit card processing, debit cards, e-transfers or any mechanism like that, would have mechanisms which go through volume-based pricing. We have it, even if a company is printing statements or whether it's processing debit, credit or other transactions.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Sure, but just in terms of this being a very highly regulated industry with the federal government, I'm just curious, because it would be fair to say that Interac is the dominant player for e-transfers in Canada. Isn't that right? That's a fair statement.

[Ramesh Siromani]

You're right. Interac is the main player. We wouldn't be interfering in their positions on pricing. They're an independent entity and have governance, and we wouldn't be—

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Thank you.

We're looking at fees here on financial transactions, and the big banks own Interac. Interac, per your admission, says that it charges a volume discount to the big banks. Interac is the dominant player in e-transfers, so don't you think it is a little sus that the competition commissioner never looked into the fact that banks—you guys—would not be motivated to move to a flat rate, to look for ways to enhance competition in the e-transfer business and to reduce Interac's dominance? As a very simple question, is this something that the competition commissioner should be looking into?

[Ramesh Siromani]

Interac is an independent entity with an independent board, and independent board members are also involved. As an independent entity having a commercial service in this market, I think they would be making commercial decisions based on what they see in the market as to the right thing for them to do and, using commercial benchmarks, and what we see—