Industry Committee on Dec. 5th, 2024

[Edward Kholodenko]

No, we don't use artificial intelligence yet. That's not to say that, as the technology improves, we won't use it in the future. As of now, the portfolios are professionally managed, and there are different risk guidelines depending on what your risk tolerance is. We go through a questionnaire, and we ask consumers, Canadians, what their level of risk tolerance is. We'll ask them what their time horizon is, how many dependants they have, what their income is and how long they want to keep the investment. Depending on some of the answers, we have an algorithm in the back that says you have a very low risk, medium or higher risk tolerance, and we'll craft a portfolio that is appropriate for that circumstance.

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

Mr. Abou Daya, what are the main reasons you can't do business in Canada?

[Ali Abou Daya]

As I mentioned earlier to the team, the key obstacle is being able to meaningfully move money from account to account. A lot of the fintech providers in Canada put a number on the screen, and this number on the screen is the money you have. If you want it to land in your account, there is a certain amount of delay, depending on the amount that you want to move and such. For a meaningful settlement system or a meaningful payment network, the ability for the consumer to have faith in the service that you deliver frequently relies on your ability to land this money in their bank accounts, and this is only possible through Interac.

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

You said earlier that you do business in a number of other countries in the world. What does Canada need to do to allow for more competition among multiple players? Could that kind of competition be permitted? We know this is already happening with cryptocurrency and the open banking system, and we can't ignore it.

Briefly, what would it take in Canada to be globally competitive and save consumers money? I'm thinking of the fees we've been talking about for several weeks now.

[Ali Abou Daya]

The main theme was competition and enabling competition. What's inhibiting a competitive solution like ours from entering is the ability to access consumer information. Definitely open banking is one of the elements.

I want to repeat what Mr. Jenkin said earlier around putting in the right safeguards and encouraging consumers with the right way to increase their adoption of cryptocurrencies as a country. We start understanding better how we want this to be part of our financial ecosystem. That definitely helps. Also, the point we discussed with Mr. Lightbound regarding regulating the adoption of stablecoin and bringing it forward into the country will help. There was a paper presented to INDU, I think it was on November 11, around making federal regulations as we come to the adoption of cryptocurrencies. These are important.

Finally, what you are doing today is helping regardless because you are inspecting where there are inefficiencies and where potential competition is not able to enter. This definitely is one of the steps that will move things forward.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Généreux.

Finally, we have Mr. Badawey.

Mr. Badawey, the floor is yours.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you, Mr. Chair.

Mr. Kholodenko, with respect to access and interoperability, do you believe there are barriers to entry or limitations imposed by major payment service providers that restrict fair competition in the e-transfer market?

[Edward Kholodenko]

I do. The fee schedule, which is not transparent, is tilted heavily in favour of the incumbents. Just because of the number of transactions that they do, it's much cheaper for them to do it. Fees often drive innovation—or lack of—and they drive the strategy an innovator can actually take because it's very difficult to innovate when you can't compete on cost. If you can't compete on cost, it's almost impossible to drive anything new.

Access is another issue, but I think we have to figure out how to force real-time rail faster. Real-time rail will actually bring innovation into this space, assuming that it gives better access to others. Payments Canada is another area that has to be looked at and talked about, but certainly, real-time rail and consumer-led banking together, with a system to monitor and review fraud, has to be all integrated on top.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you.

With respect to fee structures, are there industry practices around fee setting or transaction costs that you believe may undermine competition or consumer choice?

[Edward Kholodenko]

Certainly. We talked about how consumers are entrenched with their air miles, with those points. We talked about interchange fees, how those fees are very high and it feeds back into the whole points system. It limits the ability to innovate and to compete fairly. Interac is a different system, but access to that system...and those fees are not transparent as well.

[Vance Badawey, Liberal, Niagara Centre, ON]

With respect to innovation and market dynamics, how does Questrade view its role in fostering innovation in the e-transfer space while ensuring compliance with competition laws?

[Edward Kholodenko]

I think there are two parts to that. In the immediate future, our role is to keep driving transparency, for the benefit of Canadians and consumers, to drive those fees down. That's what we've been doing for the last 25 years at Questrade Financial Group.

The other part of that is we need to make sure that we get real-time rail up and going. We've been talking about it for a long time. The fact that you can't press a button, move money from one business or consumer to another and see that in real time is a big drag on the economy. It's a drag on our productivity. It's a drag for businesses because they're not sure when they're going to be able to access the money and to make whatever other payments that they have to make their payrolls. This is all a drag.

In part, referring to an earlier question, is that perhaps why we're paying these $30 account fees? If we made things easy, that are available through the Internet and through the phone instantly, that would drive the prices down and benefit businesses and consumers.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you, Mr. Kholodenko.

Mr. Abou Daya, I have a question for you with respect to access and fair competition.

Are there challenges or barriers imposed by major financial institutions or service providers that hinder smaller software companies from competing in the e-transfer market?

[Ali Abou Daya]

Yes, 100%. Simply, just for the ability to access the consumer information, the only effective path that's available today is through Interac. I definitely resonate with Mr. Kholodenko around Payments Canada and the RTR, which was expected to come out earlier and there's still no clear path of when this is going to come forward, this definitely prevents companies that want to put forward meaningful financial solutions from operating.

[Vance Badawey, Liberal, Niagara Centre, ON]

I have two questions that I think are very important.

I go back to interoperability and innovation. One is with respect to fee structures and transparency. Are there limitations around interoperability, or restrictive agreements that affect CanPay's ability to innovate or expand its offerings? Do you believe the current fee structures or practices for e-transfers could be viewed as anti-competitive or disadvantageous to smaller players and consumers?

[Ali Abou Daya]

Yes, 100%.

I'll answer the interoperability bit first.

The way the system is set up right now, you have to go through Interac. When you go through there, they are very particular about what you can use, when you can use it and how you can use it, even if it is inefficient and does not yield the result you need in order to deliver on the promise you have made to consumers and that makes you successful elsewhere.

As I mentioned in my note, the forcing of the technology itself is extremely limiting, and the technology in and of itself, the access that the APIs grant you, is not on par with what's available elsewhere in the world. This is where innovation is required in the system itself, and if not, in offering something—a replacement or a parallel rail—in that sense.

On the fees, absolutely, the fees are opaque, and the fee structures are opaque. We know from talking to business owners and the present public that the fees they pay are not the same as what larger institutions pay. Definitely, as Mr. Kholodenko mentioned earlier, this hinders even somebody who wants to enter. If they don't know the cost somebody else is paying, how do they know if they are as competitive as somebody else and whether they can bring forward something that's more competitive?

My answer is absolutely yes to both questions.

[Vance Badawey, Liberal, Niagara Centre, ON]

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Badawey.

Mr. Perkins, the floor is yours.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Thank you, Mr. Chair.

Mr. Kholodenko, you mentioned that we need to get real-time rail going. We've had a lot of chat about that. I think Interac has gone through a couple of presidents on this. Can you share your insight? Why is it that the banks are so reluctant to do this?

[Edward Kholodenko]

That's a great question. They have very old technology that they've put together with band-aids and duct tape over years and years. There's mainframe technology going back to the 1960s. They've invested billions of dollars. They keep investing, I don't know how much money, but probably billions of dollars annually into maintaining it. To rewrite it and to redo it is very costly, and therefore, they'd rather not, but that obviously hinders innovation.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

They have quite a big profit margin, so I don't imagine it would be too much trouble for them to find the money.

I will turn it over to MP Rempel Garner in just a moment, but I have one more question for CanPay.

Banks use security for access to the system, and safety. Mr. Van Bynen raised a good question on the issue of security and new entrants. We seem to see that excuse used a lot in Canada to prevent alternative service providers from entering. Are alternative service providers a security risk in other countries?

[Ali Abou Daya]

I'll point to the easiest way to put this forward. Security is always a risk, but if you analyze where security breaches have happened, they are rarely actual system breaches. They are more frequently behavioural. This is where Mr. Jenkin made the point very specifically.

Very simply, if you ask ChatGPT or Google if there have been any security breaches for FPS or UPI—and you're talking about systems that have tens of millions of users—the answer is no. Security, especially in the financial space, is well documented. As long as everybody abides by the normal regulations that come forward, that would not be the number one concern for innovation. I'm not saying to let the innovators run free, absolutely not. This is why we have bodies in the government that regulate how the systems can operate, but it's not to the extent that the banks put forward.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Yes, so you would be regulated like anybody else.

I'll turn it over to MP Rempel Garner for the rest of the time.

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

Thank you, Chair.

Thank you, colleagues.

Thank you to the witnesses for all of your testimony today. You've provided some very helpful recommendations to us for our deliberations. I encourage you to provide anything else that you need on the record through the clerk.

Colleagues, I would like to move that we resume debate on the motion I moved at the last committee meeting, which was:

That the committee report to the House its disappointment in Rogers Communications Inc. for not proactively disclosing the true costs of their products and services to consumers, and notes the detrimental impact of the lack of competition in the telecommunications sector is having on Canadian consumers.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, MP Rempel Garner.

Before we start this debate, considering we have only 20 minutes, more or less, I think I'll liberate the witnesses because I don't think we'll have time to hear from them.

I want to thank all of you for joining us this morning. It's been very interesting. We appreciate the advocacy that you brought before this committee today. You are free to go, and thanks again for joining us today.

I see Mr. Turnbull.