Industry Committee on Dec. 5th, 2024

[Brian Masse, NDP, Windsor West, ON]

Okay, maybe I'll move to Mr. Abou Daya.

If you're looking at a basic bank account at $30 per month and you maximize that out through a year, how efficient would you say that is in terms of productivity of the Canadian economy? For a consumer to be spending $30 on basic transactions, most of them being electronic, and they're never even stepping into a brick-and-mortar place, it's hard to believe that's really a productive format.

[Ali Abou Daya]

Absolutely. Mr. Masse, I can talk at least comparatively.

In many of the jurisdictions that we operate in and we look at, these fees do not exist. Once you observe a pattern, if one player is allowed to do it, many players start doing it. Then it becomes more and more okay, and you start to accept more of these leaks—let's call them—in your financial pipeline flow from an individual perspective or a business perspective. There are more inefficiencies that come in there.

If you talk about wire transfers for businesses, once you cap the maximum transfer amount in a certain system to, let's say, $2,000 a day for a small business, sometimes you need to make transfers of $10,000, $20,000, $30,000. You have to resort to other forms of transfers, and then those carry fees with them—wire transfers at $10, $20, $25 each. All of these amass. I've not seen full reporting on what the aggregates are for all Canadians, but I suspect this is a very large number.

[Brian Masse, NDP, Windsor West, ON]

It's kind of interesting. I can only go through what I've experienced here as someone on the Hill who's been lobbied by financial institutions on this matter. It's interesting that their executives and their board have a series of different entertainment things that are also tax deductible as part of doing business, everything from golfing to sports tickets and so forth.

Shouldn't we be looking at how those things relate to.... At the end of the day, those things are paid for by fees. There seems to be a cultural thing here of acceptance that allows them to enjoy this quasi-entertainment industry with tax deductions as part of the system that has been baked in for decade upon decade.

[Ali Abou Daya]

I don't know enough about that to comment.

We operate a very lean company on our end, but definitely, as policy-makers, as MPs in your spot, you can ask them these questions. Scrutiny on these financials or guidelines in general and the tax system, what is included and what is not are definitely things that we look to committees like yours to assist Canadians in getting a better deal overall.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

Mr. Chair, maybe we can reach out to some of the banks that we've had here and get some specific numbers on their entertainment budgets related to that and what's tax deductible and what's not tax deductible. I'd be interested in that figure as we determine what's fair in terms of charging Canadian customers and how those fees relate to their entertainment expenses that seem to be, in my opinion anyway, rather gross.

Thank you, Mr. Chair. I appreciate the time.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Masse.

Mr. Patzer, the floor is yours.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Thank you very much, everybody, for being here today. I really appreciate what everybody has brought to the table.

CanPay, I wonder if you can elaborate a little bit more her. We, because we're really seeing the lack of competition, true competition, when it comes to the online payment system per se. It seems like Interac owns the highway, and they're the only one that drives on it, for lack of a better analogy.

How do we get more competition in? We see that the big banks are the ones that are basically on the board of Interac, so of course they don't want your company to come in and be another option. Can you talk about what it would look like to try to get either another highway built for companies like yours or maybe even another vehicle on the highway? Can you elaborate on that?

[Ali Abou Daya]

One of the easiest ways is to at least introduce more oversight for committees like yours to see what's happening on the boards of such companies and the process of observing what's happening. That would open up the room for further analysis and recommendations.

One thing with Interac is they built this technology at a time when a solution was needed, and it solved a big problem for Canadians. Naturally, in technology, things stall with time, and it becomes burdensome to manage these systems because they rely on old technology. By opening up the door for providers like us under the right regulations—for us, we need to get properly regulated—we can bring modern technology that makes things much easier, which is the separate highway that you can speak of.

We can look at what recently happened in the U.S. and the implementation of open banking, because the technology is ubiquitous. There's availability for a lot of options out there. We as Canadians, under the right regulations, can select what's best for us. Introducing legislation that opens up access to consumer information, giving the consumer the power to share this account information with providers who are properly regulated like us, definitely opens up the door for more competition, and, as we know, when competition enters, the consumer is typically the biggest beneficiary of these situations.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

As a consumer, what kind of potential savings would I be looking at by opening up the competition in this regard? Do you have any figures for this committee on how much money an individual could save if there were more competition? Have you done that analysis?

[Ali Abou Daya]

We've done it more on an aggregate level, but we can transfer it down to the specific consumer. I can cite my own personal example.

On aggregates, just on the e-transfer fees, if it becomes a free-for-all for all Canadians and with reduced fees for the businesses that use Interac, we project at least $1 billion in the first year to come back into Canadian pockets. If you add to it the fees, for example, for wire transfers, if you have a larger cap.... For example, in the U.K., FPS enables businesses to move around up to a million pounds within their systems, versus the limits that we have with Interac. These wire fees, at $10 to $20 per wire, add up significantly, so you can at least double that number to go up to $2 billion, $2.5 billion, and even more.

There's a third venue that comes in, which is international money transfers. It's a bit of a tricky area, so it would take longer to explain.

If you look at the situation here in Canada, we have international companies like Wise that operate in Canada and offer very competitive international money transfers. That also could double the total savings for the consumers that way.

In short, an aggregate is about $1 billion annually for just transfer fees. As this enables more growth, within five years you could see this go up to $5 billion to $10 billion easily, given the total population of Canada.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

That's a pretty big number. I really appreciate that. Thank you.

Are there any specific regulations right now that are problematic for you that need to be changed? What are you seeing there?

[Ali Abou Daya]

The core of open banking will simplify our being able to enter and start competing. Definitely, getting access to this user account information and such and giving the consumers this right will also give us the ability to start proposing more and better adjustments in order to offer the competitive solutions to the consumers.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Patzer.

Before I turn it over to Mr. Turnbull, I'd like to ask you a follow-up question, Mr. Abou Daya.

You mentioned in your opening remarks that you have some experience in blockchain. This committee has studied blockchain in the past. What role do you think this innovation can play in making it cheaper for consumers to transact?

We see that Tether is now the third-largest buyer of U.S. treasuries. PayPal has launched its own stablecoins.

What role do you think blockchain can play in this ecosystem?

[Ali Abou Daya]

We've looked at the work that your committee has done. It's absolutely a great stepping stone for doing more.

Everything that you mentioned is warranted. Blockchain offers a lot of efficiencies as it comes to the actual movement and settlement of transactions and maintaining overall data in the ledgers.

In engineering school, we used to throw a joke that if you want to find super old code, you need to go look in the banks because some banks maintain code that's written in COBOL. That was needed. That was warranted. At the time, this was the best solution.

Now, for something like blockchain, a lot of the prerequisites that you need to create a meaningful banking system come with the technology itself. It's hosted on cheaper infrastructure, and there are the protections that are required to maintain against fraud and manipulation.

Definitely in the cases for countries where immediate and rapid change can carry some risks, a carefully considered migration and adoption plan of blockchain technologies as modules into the bigger financial system definitely is the path forward to make us more competitive as a nation on a global scale.

To that point, if we observe how other countries have also started experimenting and introducing this technology into either their sovereign systems or very specific sectors as their need demands, it is an excellent way to make us very competitive into the future.

The last bit is transparency. Blockchain brings a lot of transparency. These ledgers are very transparent, so they also definitely help in situations where opaqueness hurts the end consumer.

[The Chair, Liberal, Joël Lightbound]

Yes, thank you.

Maybe I'll add that one thing we should definitely do is lift the uncertainty regarding stablecoins, which makes no sense. There is no way you can see stablecoins as a security.

In any event, thank you very much for your comments.

I'll turn it over to MP Turnbull.

[Ryan Turnbull, Liberal, Whitby, ON]

Thanks, Chair.

Thanks to all of the witnesses for being here today for this important study.

Mr. Jenkin, I'll start with you.

I want to ask about market dominance in the e-transfer space. I think that's what this is all about. It's about looking at competition in the current landscape and the structure of the market that seems to be limiting some players that would disrupt that market, and probably to the benefit of the consumers.

It seems what we've been hearing is that some of the smaller players in this space that are innovating and disrupting, or trying to disrupt, are being blocked. It seems like the concentration of power is pretty significant so that market dominance is present.

From your perspective, Mr. Jenkin, what are the signs that market dominance is the problem here? Can you give us some examples of that?

[Dr. Michael Jenkin]

You don't have to be a Competition Bureau technocrat to look at the landscape and see that there isn't.... It's obviously not a monopolistic or duopolistic marketplace, but there are a very few, very large integrated competitors that we all know. That, ironically, has been reinforced by technology at one level, because there are increasing economies to scale in electronic networks, and this has benefited the banks enormously in terms of being able to continue their dominant role.

What we've heard from consumers and what we know from the work we've done is that there's an enormous appetite for more innovative structures, payment mechanisms and financial instruments out there. People understand that what they're being offered is a very limited menu.

The problem is—and this is a difficult thing to manage—when you're talking about moving your money around, you're necessarily somewhat conservative and cautious. The lack of familiarity with many of these new technologies that the vast majority of consumers have is definitely an issue here, too.

The other is, frankly, as I hinted at earlier, if we want consumers to be very confident and engage in new technologies, new payment providers and new systems because we know they can bring efficiencies and reduce costs for consumers, we also have to pay an equal amount of attention to the protection frameworks that are going to be in place.

This is new territory, so there are two sets of issues here. What kind of new protections are necessary given the nature and change in the technologies involved and the procedures that will be changed as a consequence as well? What risks therefore have to be mitigated from the consumer point of view? That's prudential, as well as just increasing the risks I may have of fraud. We also want all these new providers to be financially stable.

The problem right now is that too much of what we have is too limited and too siloed. We need an approach to consumer protection in this area that's integrated, holistic and flexible enough to address unanticipated problems in the future as the technology mutates, because if we don't do that, we're at grave risk of deterring people from engaging in new technologies—if we don't have a robust protection regime in place that's forward looking—but we also run the risk of too many bad stories because the protections aren't there and we didn't do a good job of anticipating the risks from the consumer point of view.

There's no better way to kill innovation than to have a lot of damaged consumers playing in new mechanisms that they aren't properly protected in. I would suggest it's important not only to make sure these new firms and new technologies can enter the market and compete, and have the right rules to encourage that, but, at the same time, to have the right safety nets and protections in place for consumers so they can enthusiastically and confidently engage in these new methods of moving their money around and banking effectively.

[Ryan Turnbull, Liberal, Whitby, ON]

That's very informative. I appreciate those comments. I appreciate the whole response that you gave. It certainly sounds like your focus is on the consumer and providing that confidence to the consumer.

Mr. Kholodenko, could you respond to what Mr. Jenkin said? Do you agree with that? I'll go to the other witness as well. I'm not trying to pit you against each other. If you disagree, that's okay. This is a democracy. We're okay with that.

I'm interested because I think Mr. Jenkin made some really good points that I tend to find quite appealing in terms of the overall sentiments. Would you support generally what he said? Is there anything you would add? Are there any critical remarks you would like to make or considerations you would suggest?

[Edward Kholodenko]

We are very pro-consumer. We've always stood up for the consumer and for making sure that Canadians are much more financially successful and secure, and so we're very much aligned in how we approach it.

I agree with just about everything that was said. I want to add, though, that, in our view, where the current incumbents have made themselves very successfully entrenched is with the interchange fees. Interchange fees are set at such a level where consumers think they're getting a benefit because they're getting all these air miles or air points in return. The air points lock them into these providers, and they keep spending money because they think they're earning points. At the end of the day, they're paying these huge interchange fees through these points that they think they're earning.

All of this technology works together to entrench the consumer in an anti-competitive playing field. It becomes very difficult to put something out there that competes with that, because Canadians have been fed this idea that the more you spend, the more points you get and you get to fly for free. Well, nothing is free. It doesn't work that way.

[Ryan Turnbull, Liberal, Whitby, ON]

I was taught from a very young age that there's nothing in life that comes for free. I very much appreciate your point that we have been enticed into thinking there are these added benefits and points to spending money. Thank you for that.

I want to go to you, Mr. Abou Daya, for your comments and reactions to what Mr. Jenkin said. Hopefully, you were following along and could hear all of those great comments. Do you want to add anything? Also, if you want to highlight any unfair practices that you've seen, I would love to hear that as well.

[Ali Abou Daya]

I resonate with my fellow witnesses. Definitely, protections need to be installed. I like to think of protections as though you're carrying a bird in your hand, and if you press too hard you're going to squish the bird.

The key problem that comes from focusing on protection is that you end up waiting for too long because you're making sure you install everything right, and then you end up losing the opportunity. As an example, a lot of delays and overhauls that are supposed to come into the system can be excused by saying that they're still working on the final protections. Otherwise, no, I'd resonate with both.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Abou Daya.

[Ryan Turnbull, Liberal, Whitby, ON]

Thank you very much.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Turnbull.

Mr. Savard‑Tremblay, you have the floor.