Industry Committee on Oct. 28th, 2024

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

Thank you, Mr. Chair.

Greetings to everyone.

I'd like to thank all the witnesses for their opening remarks.

I'll start with Ms. Ferri.

Can you briefly tell us what the interchange fee is for your credit cards?

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

Mr. Chair, I'm getting a sound over the translation.

[Diane Ferri]

Thank you for the question. Interchange fees are set by the payment networks. They are available on their website and available for you to look at the various interchange rates there.

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

So you don't have the information at the moment and you can't share it with us.

[Diane Ferri]

I don't. I would have to direct you to the Visa and Mastercard websites for that information. It's quite detailed.

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

I'll ask Mr. Siromani the same question.

Can you briefly tell us what the current interchange fee is?

[Ramesh Siromani]

As was pointed out, these are set by the network, Visa and Mastercard. They have a schedule of fees on their website, and it's publicly available.

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

My question is for both of you.

Do those fees vary according to the generosity of the reward programs, or is there no impact whatsoever?

[The Chair, Liberal, Joël Lightbound]

Mr. Savard-Tremblay, could you please indicate for whom your question is intended?

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

Actually, I did say so. My question is for the two people my first question was addressed to: Mr. Siromani and Ms. Ferri.

[Ramesh Siromani]

I think the way to look at cards is both on the revenue side and the cost side. Revenues include fees and interest charges and other components. On the cost side, as one of my colleagues mentioned earlier, there are a variety of cost lines, including processing fees, network fees, fraud losses, Apple Pay transaction fees, the embedded benefits we offer with the various credit cards like my peers talked about earlier, infrastructure costs, technology costs, customer support and the innovation we do on cards.

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

Ms. Ferri, I would like to hear your answer now, please.

[Diane Ferri]

I would direct you again to the Visa and Mastercard interchange schedules, which are available publicly. They will tell you all the ways in which those fees are charged and calculated and the basis for those. That's what I would say for that.

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

So that is information that you do not currently possess.

My next question is also for both of you, Ms. Ferri and Mr. Siromani.

We know that the costliest credit cards for merchants are the ones with the most generous reward programs. Logically, they are often held by people who are financially better off.

Since merchants charge all customers the same fees for the same purchase, would you agree that people with fewer means are indirectly subsidizing the wealthiest reward programs?

[The Chair, Liberal, Joël Lightbound]

The question is still for both of you, Ms. Ferri and Mr. Siromani.

[Diane Ferri]

Could you repeat the question, please?

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

Yes, but that was a lengthy question.

In all sincerity, Mr. Chair, if I state at the outset that my question is for these two people, I don't want to waste my time repeating my question because they didn't listen to it.

[The Chair, Liberal, Joël Lightbound]

Don't worry, Mr. Savard‑Tremblay. I'm very generous with time.

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

Thank you, Mr. Chair.

We know that the most expensive credit cards for merchants are the ones that offer the most generous reward programs. However, these cards are often held by people who are financially better off.

Since merchants charge all customers the same fees for the same purchase, would you agree that people with fewer means are indirectly subsidizing the reward programs of the wealthiest people?

[Diane Ferri]

I'm here as a credit card executive. I'm not here to comment on how merchants choose to allocate the cost of accepting payments amongst the customers who are shopping in their stores.

Merchants have choices. They can choose to accept whatever payment methods they want—cash, debit or credit. They can choose which payment networks to accept, like Visa, Mastercard, Amex or others. I can't comment on how they choose to distribute the cost of accepting the payments they choose to accept.

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

Mr. Siromani, I would now like to hear your answer, please.

[Ramesh Siromani]

By accepting cards, there are a lot of benefits to merchants, whether it's the fast guaranteed payment, not having to do a store credit, the ability to accept credit without worrying about the credit worthiness of customers, increased sales, or expanded markets online, etc. Merchants get a variety of benefits.

On the other hand, like I said in my opening remarks, we have value, choice and convenience for the customer. We provide a variety of choice for our Canadian customers, where they can choose the type of card they want that best fits their needs and that they best understand. I think that between both of them, they benefit by having choice and the merchants also benefit by having the right ability to have the right payment mechanisms.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Savard‑Tremblay.

I now give the floor to Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you. Mr. Chair.

Thank you to the witnesses for being here.

Over the past five years, Canada's major banks have seen consistently higher profit margins, largely driven by interest from credit card products, which often carry interest rates around 19.9% or higher. For example, by 2022, the combined net income of Canada's six largest banks reached $60.7 billion, with $102 billion from net-interest income.

Credit products like credit cards play a significant role in the earnings as higher interest rates persist, despite the broader lower interest rate environment. Banks have also benefited from several favourable conditions, including minimal defaults due to pandemic-related federal aid and low operational costs. In fact, loan loss reserve funds set aside to cover potential loan defaults were largely released as fewer Canadians defaulted than anticipated, which boosted profits further. The strong financial performance led to increased dividends and substantial executive bonuses, but did not translate to lower interest rates for the consumers.

My question is for anyone on the panel. Would you like to contest any of that?

Okay, then I'll just move on. It will be based upon that.

Ms. McKee, why is it, then, that banks and credit cards require a 20% interest rate, generally, for their products? There are some other products that are available at lower interest rates, but they generally also come with more difficulty to acquire for consumers or fewer benefits elsewhere.

Why is it consistently 20%, despite even the Bank of Canada just recently lowering its rate? Why would credit cards not have a lower rate as well?

[Meg McKee]

I think it's important to note that we have a variety of cards available, including credit cards with lower rates and cards that have no fee or low fees.