Evidence of meeting #151 for Industry, Science and Technology in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was bank.
A recording is available from Parliament.
President and Chief Executive Officer, Interac Corp.
I can't speak to the Competition Bureau's decisions in the mid-nineties.
Simon-Pierre Savard-Tremblay Bloc Saint-Hyacinthe—Bagot, QC
We were also informed that, when financial institutions other than banks, such as fintechs, requested access to consumer accounts, banks imposed the use of the Interac network on them. However, the banks are also majority shareholders of Interac.
Without concluding that there is a conflict of interest, don't you think that this fundamentally undermines good and healthy competition?
President and Chief Executive Officer, Interac Corp.
Fintech companies have a number of different ways they can move money between the banks. They can move money through electronic funds transfers. EFT is a very common method around the world for fintechs. They can also move money through pre-authorized debit, bill payments and e-transfer.
We welcome access to e-transfer. That's why we have 230 participants. We've worked to broaden access, and FINTRAC and the Canadian investment regulatory oversight authority have enabled us to widen access. We work with Wealthsimple to make that possible.
I would not claim it's an easy process. I mean, you're connecting to a prominent payment system, so there are very high levels of expectation, not just with the technology but also from a business rule point of view, a regulatory perspective and a security perspective. It's not a small undertaking to connect to e-transfer.
Bloc
Simon-Pierre Savard-Tremblay Bloc Saint-Hyacinthe—Bagot, QC
That said, you mentioned that the Competition Bureau had looked at Interac's governance model. However, a representative of the bureau also told us, at a meeting of this committee, that more oversight is needed to find out what is happening on the boards of directors. That was said verbatim.
However, we know that the banks of Canada are the majority shareholders of Interac. Correct me if I'm wrong, but that's the information we have.
Should we eventually increase the oversight of boards of directors in order to create competition in the Interac transfer sector?
President and Chief Executive Officer, Interac Corp.
Interac is very committed to working with the Competition Bureau and to answering their questions. We're meeting with them later this week. In their initial assessment, we'll work closely with them.
On the governance structure of Interac, there are 13 directors, of whom six are from designated systemically important banks, or D-SIBs. That's fewer than half of the directors. There are certain decisions, like pricing, that never go to the board of directors. They stay in the independent committee. I'm a member of the independent committee and there are four independent directors.
We have best practice corporate governance in place, which was put in place in 2018.
Bloc
Simon-Pierre Savard-Tremblay Bloc Saint-Hyacinthe—Bagot, QC
Are you also confirming that the banks are majority shareholders?
President and Chief Executive Officer, Interac Corp.
Interac has a wide range of shareholders, including the designated systemically important banks, but it has a cross-section of payment processors, caisses populaires, credit unions and newer entrant fintechs that are our shareholders as well.
Liberal
NDP
Leila Dance NDP Elmwood—Transcona, MB
Hi. Thank you so much for coming.
I'm new to the committee, so I'm going to take a couple of steps back to make sure that I completely understand what I'm asking and I don't get anything confused.
My riding is Elmwood—Transcona, and people there are struggling daily to afford groceries and the cost of living, so every dollar really matters. I've heard what you've said tonight. You talked a bit about the payer and the recipient when it comes to transferring money.
If I'm understanding this correctly, the payer pays to transfer money and the recipient pays to receive the money. Am I understanding that correctly?
President and Chief Executive Officer, Interac Corp.
Interac e-transfer prices the service for the 230 participants. We do not set any prices for consumers or businesses. What those 230 participants charge their customers we have no insight into. It is a wholesale business-to-business arrangement for e-transfer.
NDP
Leila Dance NDP Elmwood—Transcona, MB
Okay, perfect. I'm just trying to figure out how this all works in the big scheme of things.
Earlier tonight, you mentioned that 20 million transactions happen every day. If you went from $100 to $50 and then down to 15¢ per transaction, we're looking at about $3 million a day. I'll be honest with you. I tried to use my calculator to figure out what that would be in a year, and I'm pretty sure that's over a billion dollars a year in fees back and forth, so I'm trying to understand where you're coming from.
We're talking about how fees are not regulated. We don't know what the numbers are and what you're offering when going from your volume-based tiers to this flat-rate fee. How can Canadians believe that they're paying a reasonable fee that isn't padding pockets when you guys reported a 13% profit last year?
President and Chief Executive Officer, Interac Corp.
Interac is a privately held company so we don't disclose our financial results.
We do surveys on our products to ensure that we understand how consumers are using them. E-transfer is free to 95% of Canadians, and that's because the 230 participants bundle the pricing of e-transfers into a number of different products that you and I would use from a financial institution. Only 5% of Canadians actually pay for e-transfers, and I think that's part of the reason for its mass adoption and success in the marketplace.
NDP
Leila Dance NDP Elmwood—Transcona, MB
When you talk about going to the flat-rate fee, that's going to make sure the major banks, credit unions and caisses populaires—all of them—all pay the exact same amount. Is that correct?
NDP
Leila Dance NDP Elmwood—Transcona, MB
I just want to make sure I'm understanding this completely. When everybody is paying the same amount and fees are lowered, numbers will continue to go back up. Is that right? I would assume that every year you're going to look for a bit of an increase. Will that mean that, at some point, smaller businesses will be back to paying what they were paying before?
President and Chief Executive Officer, Interac Corp.
Interac is committed to the flat-rate price schedule for e-transfer. As volumes get bigger, assuming we do our job well, we should be able to gain efficiencies in our system, so I don't see prices going up for e-transfer. I see efficiencies that would enable prices to stay as they are or even perhaps come down.
If you look at jurisdictions such as Australia, the U.K., India and Brazil, you see that scale can really benefit the ecosystem, and that's a question of getting the right technology in place. In fact, RTR, real-time rail, will help to modernize the payments infrastructure in Canada. A modern infrastructure enables efficiencies and the use of the latest technologies, such as public cloud and AI. That can help make a system more secure and more efficient, which by definition should mean that we can maintain prices or even lower them at some point in the future.
NDP
Leila Dance NDP Elmwood—Transcona, MB
You talk about what other countries are doing. Do they have a monopoly like you do here in Canada, or is there some competition that might allow them to keep their prices or fees lower?
President and Chief Executive Officer, Interac Corp.
Around the world, about 50 countries have put in a real-time payment settlement system, a new one for low-value payments, and there are other payment rails available to all of these participants. There could be a batch system, a high-value payment system, as well as the low-value settlement system.
Fintechs will have different products on different rails with different prices. Consumers and businesses will then access these different sophisticated products. It's really about bringing in another opportunity for building payment products on top of e-transfer and real-time rail.
Liberal
The Chair Liberal Joël Lightbound
Thank you very much.
MP Rempel Garner, the floor is yours for five minutes.
Conservative
Michelle Rempel Conservative Calgary Nose Hill, AB
Thank you, Chair.
Mr. Wilmot, you mentioned that you are going to a flat rate, but you weren't clear with my colleague on whether any of your members would see a reduction in fees. Will any of your members or users see a reduction in fees when you go to the flat rate?
President and Chief Executive Officer, Interac Corp.
The flat rate will be introduced in 2025. We have just received approval from the Bank of Canada. We are in the process of communicating that to the 230 participants.
We don't disclose the rates as a privately held company for those 230 participants. Once we have discussed that with the participants, we'll move towards what our communication strategy will be for the flat-rate scheme.
Conservative
Michelle Rempel Conservative Calgary Nose Hill, AB
Just to be clear, though, are you saying that every single one of your users will pay the same rate?
President and Chief Executive Officer, Interac Corp.
The flat-rate fee will replace the volume-based fee. Each of the 230 participants will receive a new fee schedule accordingly.
Conservative
Michelle Rempel Conservative Calgary Nose Hill, AB
When you say “fee schedule”, it sounds to me like you're obfuscating a bit. Will there be hidden fees? Will anyone see a reduction in fees, or is this just a shell game to placate a potential Competition Bureau investigation?