Industry Committee on Dec. 5th, 2024

[Edward Kholodenko]

The banks are in every facet of consumers' financial lives. They bundle products together, and say that, if you buy this, they'll give you a discount on that. There are ways that they have.... Just by sheer volume, the sheer mass that they have, they're able to have lower costs and make more profits. On the other hand, we as a firm that is much lower in terms of scale don't have the same type of scale, so our costs are, therefore, higher. It's much more difficult to compete.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, MP Perkins.

We'll now turn it over to MP Van Bynen.

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

Thank you very much, Mr. Chair.

If we're admitting our sins, I, too, like Mr. Perkins, had a career in banking. A part of that was financial advice as well.

The Competition Bureau recently announced at our committee that they're looking into potential anti-competitive behaviour in the e-transfer system.

I'll start with Mr. Abou Daya.

Would you have any suggestions for the bureau that they should look into as they're undertaking this investigation?

[Ali Abou Daya]

Absolutely.

I mentioned this in the note and in our recommendations. To enable competition is to look at the hurdles that stop companies like ours from offering competitive solutions in the market. Definitely, assessing how easy it is to access the accounts....

Look at what the consumer protection bureau in the U.S. did. They looked at how a company, regulated with the right bodies within the country, can get access to this information and how difficult it is to get access to this information. To be able to move the funds from one account to the other is definitely one of the aspects to look at. Looking at how other people did it usually helps as well.

Look at the examples in other countries where they opened the door for competition. That always improves consumers' lives. That's definitely the other venue that we could look at.

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

Do you have any comments, Mr. Kholodenko? From your perspective, what should the Competition Bureau look into?

[Edward Kholodenko]

I think the Competition Bureau should look into the overall transparency and make sure that there's clear language and simplified disclosures.

Certainly, we recommend that the committee propose a competition review framework in its entirety, an accompanying schedule for review of all new and existing payment frameworks and intermediaries and a review of chosen dominant ecosystem intermediaries.

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

Has Questrade observed any exclusive agreements or practices by major financial institutions that limit access to or functionality of e-transfer systems for non-bank entities?

[Edward Kholodenko]

It's very difficult to get into the Interac system to become a direct transfer payment provider. The costs associated with that are burdensome.

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

Are there any technical or operational restrictions imposed by payment providers that hinder innovation or the ability of companies like Questrade to compete effectively?

I'm looking at restrictions imposed by payment providers.

[Edward Kholodenko]

When you say payment providers, do you mean Interac itself? Are you talking about intermediaries that connect into Interac? There are several—

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

I mean Interac or the bank, the financial institutions.

[Edward Kholodenko]

Interac has a very strict framework for connecting into it. They'll only allow you to do things on their specific terms in ways that they want you to do them. It's very difficult to work with them.

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

What recommendations would you propose to ensure there's fair competition and better consumer outcomes in the e-transfer payments market?

[Edward Kholodenko]

I think we have two choices.

We can create an alternative to Interac that functions as a utility for the entire industry, with regulated payments and a framework where they need to open it up to others to be able to tap into it. It has to be regulated. The biggest thing is fraud, of course. You have to monitor fraud.

The other choice is to do that with Interac and to make sure they are allowing others in to review how their fee schedule is structured—similar to a stock exchange, if you will. A stock exchange is a public utility. The fees are regulated by the Ontario Securities Commission, and they have to allow access to regulated entities to be able to do what they need to do in order to interact with consumers.

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

In the Canadian banking system, their primary brand is the confidence in the security. Are there any processes or systems that you'd recommend the Competition Bureau look into to give that same sense of security within the systems regarding e-transfers?

[Edward Kholodenko]

Certainly, the payment provider needs to be involved in fraud detection. It is a very serious issue that affects not only the institutions that are responsible for transferring money, but also the consumers themselves.

There are systems being implemented throughout the world that need to be looked at and implemented.

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

Thank you, Mr. Chair. Those are my questions.

[The Chair, Liberal, Joël Lightbound]

Thank you, MP Van Bynen.

Mr. Savard‑Tremblay, you have the floor.

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

Thank you, Mr. Chair.

I want to thank all the witnesses for their presentations.

My question is for Dr. Jenkin from the Consumers Council of Canada.

First of all, thank you for being here.

In your opinion, are financial institutions and operators investing enough in education and the dissemination of financial literacy information, particularly on the cost of using credit cards? They differ from other payment methods, such as debit cards and cash, particularly because of their very high interest rate.

Is enough awareness being raised about this? Are we investing enough in what I would even venture to call prevention?

[Dr. Michael Jenkin]

Thank you, Mr. Savard-Tremblay, for your question.

Banks are not delinquent in providing information to their customers, but the question of how effective the efforts are is another matter.

We focused on credit cards, but our own observations are more general. Broadly speaking, financial literacy for consumers is a very important issue. It's a public interest issue and it's one which the government has to be engaged in as well.

Unfortunately, there are a lot of problems around financial literacy. Studies have been done that indicate that even with good financial literacy education—often because of biases consumers have or the behavioural aspects they exhibit when they are dealing with money in general and with financial institutions particularly—consumers often work against their own interests. It's been found that financial literacy is not always as effective in and of itself as people hope it might be. That's why the regulatory backup is really important here, which is that there are protections in place that don't rely on the consumer being knowledgeable in a detailed way about how systems function and about the risks involved.

The reality is that, to some degree, consumers often need to be protected from themselves because of the fact that they may engage in practices instinctively that aren't necessarily good for them. Therefore, it's important to have a very clear, concise and unified set of protections and rules about what can and can't be done when consumers engage in electronic payment systems in particular, which are, despite the lack of innovation in Canada, becoming more complex and growing in variety and number. People are not as familiar with them as they are with traditional payment instruments such as cash and, to a certain extent, debit cards, cheques and so forth.

We need a unified set of consumer protections for all kinds of electronic transfers and payment mechanisms, not just the piecemeal system we have now. In some cases, the protections that are available for one payment mechanism are not available for another, or the thresholds are different.

It's very important that we get a good understanding of what needs to be protected for consumers and make it available across all payment channels. If we don't do that, consumers don't have a hope of understanding what their rights are and what they have to be worried about.

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

You said that banks were not delinquent. I don't want to ascribe motives to anyone, and I'm not able to read their minds. However, I think it's true, proven and demonstrated that banks make more of their money from debt than investments.

Is that correct?

[Dr. Michael Jenkin]

Well, what I am saying is that they have to some extent conflicting objectives, or at least conflicting interests. They don't want lots of consumers getting seriously into debt and then not being able to pay off their debts that they accumulate on credit cards, or any other financial instrument for that matter.

On the other hand, because credit cards have such abnormally high interest rates, they are a very profitable product line for banks, and so I guess the perfect world for them might be that they have lots of indebtedness but no one is really going to the wall just yet.

That's not clearly in the interests of consumers. The problem with credit cards and perhaps newer payment or credit mechanisms is that they're engaged in accumulating debt that's not structured in a way to give them pause. That's why we've recommended in our paper that we need a much more proactive set of policies and processes for consumers who are running into financial difficulty or have payment histories or debt accumulation histories that indicate that they may be in trouble at some point in the future. The bank should be intervening and helping those people get to lower cost credit instruments, and should also be using automatic kinds of nudges, as they're called in the business, to encourage consumers not to pay part of the monthly bill but to pay it all to the extent they possibly can.

Right now, for example, if you get a bill from the bank, you will get a notice saying, in very fine print, that if you do the minimum payment this month, it will take you, say, many years to pay off the debt, but it's lost in the paperwork. We need more effective things like that that would alert consumers to the fact that they are engaged in problematic activity and if they don't change their practices, they will end up in serious difficulty.

However, right now that one little piece of behavioural economics that's in billing is lost for most people. It's not noticeable.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

Mr. Masse, the floor is yours.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

Mr. Jenkin, with regard to financial literacy, one thing I don't like is it just puts it like, “Well, if Canadian consumers weren't so stupid, they really could do better.” It just plays into that. We have a whole system that's baked in, from even training our kids to go to banking by setting up accounts and a whole series of things.

Do you have an opinion as to how inefficient our economy is because of the value we get out of banking in general? If you look at a $30 a month account just to do basic transfers, you see it's a drag on our actual economy overall, outside even just being inefficient for consumers and small and medium-sized businesses and so forth. That would seem to me to be a significant drag on our economy. We should be improving our financial capabilities and productivity. They often comment on how workers aren't productive, but I think our financial sectors are significantly underperforming to the value that they're actually contributing.

[Dr. Michael Jenkin]

Well, we haven't done any detailed econometric studies. We're not a large enough organization to afford that kind of thing. Personally, I'm not aware of in-depth studies on the relative efficiency drags of the structure and nature of our basic payment systems or banking systems. It's hard to make a judgment call on that.