I am here today to welcome you, witnesses. Thank you very much for coming in. And thank you also for your previously submitted written material, which I'm sure was of interest to committee members.
I'll ask the cameras to vacate now. Thank you very much.
Pursuant to standing order 108(2), this is a briefing on automated teller machine fees and electronic payments.
We have two hours this morning. You've all been instructed that you have five minutes to cover a very important topic. We recognize the brevity of that time. I will give you an indication when you have a minute remaining. I will have to cut you off at five minutes to allow for time for exchange with our committee members.
Thank you again. We appreciate your being here.
We'll begin with CIBC, Sonia Baxendale.
Thank you very much, and good morning.
I am pleased to have the opportunity to provide CIBC's comments on the issues of choice and competition with respect to banking services in Canada.
Let me begin by giving you a brief overview of CIBC's approach to enhancing services for our clients and ensuring continued competitiveness. CIBC has made, and continues to make, significant investments in all of our distribution channels to improve accessibility and the range of services we offer our clients. As a result of these investments, today we operate one of the largest branch, ABM, telephone banking, and online banking networks across Canada. We have been upgrading our network to adapt to changing market conditions. CIBC has approximately 1,050 branches across Canada. To that end we are in the process of opening, relocating, or expanding another 70 branches, to be completed over the next five years.
Our telephone banking and online banking services hold leading positions in the marketplace. In fact CIBC's client website was just ranked number one among Canadian banks by an independent market research firm.
We have built the country's second largest bank-operated network of ABMs, with more than 3,800 bank machines, representing 23% of ABMs operated by Canadian banks. Earlier this month we announced the completion of a multi-year $90 million upgrade of our ABM network, offering improved access for persons with disabilities, enhanced security, and new transaction features. For example, we have doubled the number of CIBC access for all ABMs, from 610 in 2004, to almost 1,200 today. These machines are installed at wheelchair-accessible height, and include headphone jacks for audio access, grab bars, and improved lighting.
We have also provided clients with the opportunity to complete withdrawals more quickly, and we have added a calculator to help them total multiple deposits. We have developed new ABM features to deter card-skimming devices and keep our clients' accounts secure. In addition to ABM locations at our branches, clients can access CIBC bank machines at convenience stores, universities, colleges, and hospitals, as well as Loblaws grocery stores through our President's Choice Financial machines.
By investing in and maintaining such a large network, we are providing our clients with very broad access, convenience, and choice. We are also providing them with the opportunity to avoid ABM surcharge fees by using our network versus those of other banks or white label bank machines. In fact almost 90% of all ABM transactions undertaken by CIBC clients are done at our CIBC machines, meaning our clients pay no additional fees. These investments in our ABM network, as well as in our branches, telephone banking, and online banking, are how CIBC is responding to the competitive financial services market in Canada.
We have taken steps to address the specific needs of students, seniors, and those with disabilities. For example, through our CIBC Advantage account, our clients aged 60 or older have access to an unlimited number of free transactions through the CIBC channel of their choice, as well as free bank drafts and money orders. CIBC remains committed to providing our clients with the most convenient, accessible, and affordable financial solutions.
Thank you. I look forward to your questions and comments.
Thank you, Mr. Chair and members of the committee. The Competition Bureau welcomes the opportunity to take part in the committee's study of ABM fees and electronic payments. My comments today will focus on the 1996 Competition Tribunal order concerning Interac. However, I would first like to briefly describe the mandate and the role of the Competition Bureau.
The Commissioner of Competition is responsible for the administration and enforcement of the Competition Act. The purpose of the act is to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy and to provide consumers with competitive prices and product choices.
As you will appreciate, the bureau routinely receives complaints from consumers saying that they believe prices are too high or that competitors charge similar prices or have increased their prices in unison. Other complaints frequently allege profits or price gouging.
It is important to understand that high prices and profits in and of themselves are not contrary to any of the provisions of the Competition Act. However, when high prices are the result of anti-competitive conduct circumscribed by the Competition Act, the bureau will deal with those situations expeditiously.
Agreements among competitors to fix or raise prices are subject to the severe criminal conspiracy provisions of the act, the penalties for which include heavy fines and jail terms.
In addition, the act deals with potentially anti-competitive conduct that has prevented or lessened or is likely to prevent or lessen competition, whether it be anti-competitive mergers or abuses of a dominant position aimed at eliminating or excluding competitors from the market.
One of the major investigations under the abuse provisions in the 1990s involved the Interac Association which operates the network that allows customers to make withdrawals from ABMs not belonging to their own bank. Originally, Interac was dominated by a small number of large deposit-taking institutions. Rules imposed by these few members restricted access to the network, impeded innovation, and limited competition in providing banking service to merchants and consumers.
The bureau's investigation of Interac focused on practices that limited competition in the supply of network services to both businesses and consumers. The practices included the following: limiting membership to deposit-taking institutions; charging prohibitively high initiation fees for new members who weren't among the nine members at the time; having restrictions that impeded the introduction of new services or innovative products; and prohibiting charges for ABM use, which discouraged the placement of ABMs and deprived consumers of the benefits of widespread ABM deployment determined by market forces and not by the association.
In June 1996, the Competition Tribunal issued a consent order against Interac that not only prohibited these anti-competitive acts but also put in place changes necessary to restore competition in the affected markets. The order required Interac to open its network to potential participants; collect fees based solely on a user or transaction basis; broaden the governance of the association; make the network available for additional types of accounts and new services; and remove the prohibition on surcharges, which are now known as convenience fees.
The order did not in any way mandate or regulate the imposition of surcharges. However, allowing surcharges permitted operators of ABMs to determine and charge a competitive price for ABM services based on their costs, consumer demand and other relevant market factors.
Consequently, consumers have benefited from the placement of ABMs in all parts of Canada in accordance with market forces. Following the 1996 order, the number of ABMs increased from 12,800 in 1995 to 55,000 in 2006. In fact, Canada has the highest number of ABMs per capita, and we are among the heaviest users of ABMs.
To reiterate, the order does not regulate the convenience fees that ABM operators charge consumers, nor does it require that they charge any fee at all. Furthermore, the order does not deal with network access fees, so-called Interac fees, or any other account-related fees connected with cash withdrawals or debit transactions.
I would be pleased to answer any questions you may have.
Thank you, Mr. Chairman.
Honourable members, thank you for this opportunity to speak with you today. The main focus of my comments will be ABM convenience fees within the specific context of Quebec.
While National Bank is Quebec's leading bank, we have a more limited reach elsewhere in Canada, where we operate 105 branches and as many ABMs. As we are concerned with providing our clients outside Quebec with the best possible service, the bank has become a member of the Exchange network.
I wish to point out that we did not join the network as a way to offer our clients the possibility of withdrawing funds without paying convenience fees. That was not our goal. We did it mainly to enable them to make deposits or transfer funds between accounts, which is what makes the Exchange network ABMs a remote service counter in the real sense of the term.
I also want to remind you that 46% of ABMs that are accessible through the Exchange network belong to banks. As such, this network cannot be regarded as belonging to cooperatives, especially given that Desjardins, the largest cooperative in the country, is not a member.
Our core market, Quebec, has some particular features that I would like to hone in on. Of the ABMs located in the province, 53% are operated by independent suppliers that frequently charge a convenience fee of $3 per transaction.
In addition, more than half of the ABMs operated by financial institutions belong to a deposit-taking institution that is not a bank and therefore not regulated by the federal government. That financial institution, the Desjardins Group, charges a convenience fee of $2 per transaction.
That means that the National Bank's convenience fee is lower than those charged at around 75% of ABMs in Quebec. It also means that our clients have to pay a $2-dollar convenience fee each time they use a Desjardins ABM, while Desjardins clients pay 50¢ less per transaction to use our ABMs.
In such an environment, we feel that imposing regulatory limits on such fees would be highly discriminatory and unfair for our clients. How could we explain to them that they have to pay $2 each time they use the ABMs of a competitor that operates four times as many banking machines and whose clients can, unlike them, withdraw cash from our machines or those of another chartered bank for free?
Moreover, our clients have dramatically altered their financial payment habits over the past 20 years, and they have benefited from a payment system that has continually evolved towards greater efficiency and reliability. The system is built on the user-pays principle, the only one that enables the deployment of new technologies and encourages economically rational choices. The arrival of the digital wallet will mark yet another step in that evolution and could very well make the topic of today's meeting irrelevant. One of the results of this adjustment process is that third-party use of our ABMs has declined 20% in the last few years.
However, since we only operate a handful of ABMs outside Quebec and only 6% of all ABMs located in Quebec, we are constantly analyzing market developments and client needs so we can offer our clients, through highly attractive banking packages, ready access to the various transaction methods at a competitive price, be it through banking machines or other means.
I'll be available for questions, in both languages.
Thank you, Mr. Chairman.
Thank you to the members of the committee for the opportunity to speak with you today.
I'd like to start by saying that Canada has one of the best, most affordable, and most efficient banking systems in the world. The price of retail banking services, including ATM access, is low relative to other countries and is driven by intense competition. Canada has more ATMs per capita than any other country. Our pricing is fair and transparent, based on a pay-per-use principle.
At RBC, our clients benefit from access to Canada's largest distribution network, including more than 1,200 branches and business banking centres, telephone and Internet channels, almost 2,000 mobile bankers, and of course almost 4,000 ATMs, which are available to our clients at no direct charge. In fact, 80% of our clients do not pay for using our ATMs. Our network of ATMs is the most extensive in Canada and we are expanding, with plans to deploy more than 400 new machines in the next three years. All of these are RBC machines. We do not own any white label ATMs.
Students benefit from our extensive network. We have 67 ATMs now, or planned, on 35 college and university campuses, and 446 ATMs within one kilometre of the 229 university and college campuses in Canada.
Seniors and people with disabilities also benefit. We were the first bank to offer audio-enabled machines, which are serving as a prototype around the world. Today our clients have access to 425 of these talking ATMs in Canada, and more than 550 machines have been designed so that people in wheelchairs have easier access.
A fundamental part of RBC's philosophy is that we are located in and contribute to communities all across Canada, because where our communities succeed we all succeed. Our 60,000 employees work hard every day to provide our 12 million clients with financial products, services, and advice at competitive prices. Competition is working and Canadians are being well served by a stable, efficient banking system that provides maximum choice and convenience.
Any attempts to reduce competition, including additional regulation, will only lead to fewer options for consumers. This point has been recognized by many, including members of this committee. Without the flexibility to charge and price on a competitive user-pay basis, our clients and shareholders would effectively be subsidizing access to our ATM network for clients of our competitors. It's unlikely that we would be able to continue to maintain a network of 4,000-plus ATMs; innovation and access would suffer and costs to consumers would undoubtedly rise. Increase regulation and you'll be reducing choice for students, seniors, people with disabilities, and all Canadians.
Thank you. I'll be pleased to answer any questions.
Mr. Chair, honourable members, thank you for the opportunity to appear before you today.
TD employs about 58,000 people and has over 14 million customers around the world, over 10 million here in Canada. At TD we place a premium on customer service, a fact recognized by external surveys that place us first in customer service. We ask more than 400,000 customers each year how we are doing and what we can do better to ensure we offer the service they want and deserve. This is reflected in the wide array of accounts, products, and services we have designed to suit the needs of our customers, including low-cost accounts and special accounts for students and seniors.
Our customers also choose how they want to bank with us. If they prefer dealing with the branch, we have an expanding network across the country and the longest branch hours in the industry. In the past three years, TD Canada Trust has opened 63 new branches, the highest number of all the banks, and we plan on opening another 30 this year.
If customers choose to bank online, TD offers EasyWeb, an award-winning, full-service online banking experience. We also offer telephone banking through EasyLine, and of course we are expanding our network of automatic banking machines. We offer ABM services exclusively through our network of conveniently located Green Machines. TD does not own or operate so-called white label machines.
Our bank is very proud to have invested over $250 million installing more than 2,500 brand new Green Machines across the country, all of which feature the latest in security and assisted technology for disabled customers.
Recently we announced that we would install a TD Green Machine on or within walking distance of large university and college campuses in Canada to help make sure more TD customers have convenient access to their money. We did this because we recognized that we did not have a presence on all campuses and wanted to ensure that students, particularly TD Canada Trust customers, had access to our ABMs. We have now written to the identified schools and look forward to moving forward with this plan.
TD owns and operates its ABM network to maximize the service we offer to our TD clients. TD customers pay very low or no monthly charges to access their funds via our Green Machines. Eighty-one percent of all TD Canada Trust accounts do not pay any transaction fees when using TD Green Machines. Seniors who belong to the Plan 60 account do not pay any fees at all.
TD ABMs are linked to a wider network that allows non-TD customers to access their money through our machines, and as you know, there is a transactional fee associated with this service. This system is very transparent. TD and the banking industry have worked very hard to ensure Canadians understand the fee system, and over 75% of ABM withdrawals in this country are made by Canadians using their own bank's ABMs. In terms of the TD experience, over 80% of TD Green Machine transactions are made by TD customers.
On the issue of electronic payments, I would be happy to answer any questions about TD's role in the bill payment process. I would like to make the point, however, that all bills our customers pay online get processed by us that day, but it can sometimes take two business days for the payment to get processed by the billing company. It's worth noting, though, that 95% of TD's billers recognize the transaction date as the payment date, thereby minimizing the customer impact. Information advising customers of processing times has always been available on our EasyLine and EasyWeb online service.
As my time is short, I would just conclude by saying that TD has always encouraged customers who have questions or concerns about any aspect of their banking experience to talk to us about the account options that best suit their needs.
Thank you. I'm happy to answer your questions.
Good morning, Mr. Chair and members of the committee. Thank you for the opportunity to speak with you today.
First of all, let me tell you a bit about our bank. Scotiabank is Canada's most international bank, anchored by a strong franchise here at home. We have just under 1,000 branches here in Canada and 2,800 ABMs. Our bank is 175 years old this year, and we're very proud of that. We've seen a lot of changes in such areas as electronic banking, but we fully recognize that new channels are additional options for our customers rather than replacements for branches.
I am going to focus my remarks in the next few minutes on ABM fees, although I will be pleased to answer any questions you may have.
I would first like to state that I appreciate the concerns expressed by the members of this committee and by Minister Flaherty. We strongly agree with the minister and the Department of Finance officials that the best way to protect the consumer interest and make the marketplace effective is through competition and choice.
We face stiff competition for clients. The number of different account packages and features that exist is a good example of the degree of competition driving these differences. We are constantly reviewing our account packages to ensure that they remain competitive and effective in meeting the needs of our customers. We're also interested in finding solutions to address access issues for customers most impacted by the fees that result from the use of our competitors' ABMs.
More than 75% of our customers never pay an ABM convenience fee, as they choose to use Scotiabank machines. Furthermore, we're adding branches and ABMs across the country so our customers can find a Scotiabank when they need one. In addition, customers can access Internet and telephone banking at their convenience.
Finally, we're seeing an increasing trend by customers to use point of sale as an opportunity to take cash back and minimize fees.
Consumers benefit from the range of options they have to access their accounts, including a coast-to-coast ABM network that ranks Canada first in the world in terms of access as defined by ABMs per capita. Canada's major banks control one-third of the ABMs in Canada. Two-thirds of the ABMs are controlled by other providers.
I know the committee has been interested in ABM fees in the U.K. market. While this model may seem attractive on the surface, it provides significantly less access, it relies on a lower standard of disclosure of fees, and it results in higher costs to consumers through hidden charges. This model is sound from neither the consumer's perspective nor in the interest of competition. It is very important to consider the total cost of banking, and on this metric Canada is one of the best in the world.
In summary, we offer our clients very competitive service packages. We also welcome input not only from our customers but from the government on an ongoing basis as we review and upgrade our service offerings.
Mr. Chair and members of the committee, I'd like to thank you very much for the opportunity to speak with you today.
Thank you, Mr. Chairman.
We are pleased to have the opportunity to appear before you to discuss our approach to automated banking machines.
BMO has invested heavily in our network of Instabank banking machines. We currently have nearly 2,000 machines across the country. In the past couple of years we have replaced every one of them. Our new generation of machines makes banking from an ABM more accessible, faster and simpler. In short they make it easier for our customers to do their business with us.
We have been strategic about locating our ABMs in locations that provide convenient access to our customers, allowing them to avoid hassles and fees, especially those charged by the higher-priced, white label ABMs. For example, we have more than 200 ABMs within one kilometre of university campuses across Canada and an additional 300 within two kilometres.
Our customers' behaviour tells us we must be doing something right when we decide where to locate our machines because, at last count, about 85% of our customers' transactions were completed at BMO machines, compared with 75% industry-wide.
That said, we do take seriously the concerns raised by the Minister of Finance and your committee. We recognize that you are approaching this issue not only as responsible public policy-makers, but as consumers of banking services, in your own right.
So, we are conscious of your concerns about the cost of banking for seniors and students, which is why we provide no fee banking plans for both these groups.
Seniors in the know know that BMO's banking plan for seniors is free and that it is the only free seniors plan that offers them one free monthly Interac transaction at another financial institution's ABM.That's a market response and it's a competitive decision.
Students in the know have known for some time that BMO has the best student banking plan, a free banking plan, with the added flexibility of one free e-mail money transfer per month. When compared to most of our competitors before you today, our free monthly plan saves students anywhere from $1.25 to $3.45 per month. That adds up over the course of a year. That's a market response and that also is a competitive decision. Yesterday we reaffirmed our commitment to seniors and students by extending the fee waiver on our performance plan for seniors and our plus plan for students for three more years.
What does this all mean, Mr. Chairman, in practical terms? It means that in 2006 we provided free banking services to 390,000 students, as well as to 866,000 customers aged 60 or over.
Let me cite another example of a competitive solution to the issue of ABM access. HSBC and BMO entered into an agreement under which HSBC decided to buy access to our Instabank network instead of making a large capital expenditure of their own. Under this arrangement BMO does not charge a fee to HSBC customers who use our machines. Nor does HSBC, but then, neither did they incur the cost of building the network. HSBC customers can even make deposits to their accounts through a BMO machine, and as you know, Mr. Chairman, your committee has discussed this issue of full functionality in the past.
The point is that there is nothing stopping individual financial institutions from using these kinds of creative arrangements to gain competitive advantage, and we have. That is a market response and, again, a competitive decision.
Mr. Chairman, I thank you and your colleagues for giving us a chance to exchange views on the subject, and of course I'd be happy to answer your questions.
Thank you very much, Mr. Chairman and committee members. I want to thank you for this opportunity to appear before the committee as part of your study on ATM fees.
My name is David Phillips, and I'm president and CEO of Credit Union Central of Canada, commonly known as Canadian Central.
Canadian Central primarily represents the nine provincial credit union central organizations in Canada, and through them 498 credit unions. I should point out that these credit unions are situated in all provinces of Canada except Quebec. We do not represent the caisses populaires of Quebec.
I would like to limit my opening remarks to three specific points. Two of these are points of contrast with the banking industry, and the third I suspect is a point of similarity. The first point of contrast is the existence of surcharge-free, inter-credit-union networks in the credit union system. Unlike the large commercial banks, individual credit unions, being community-owned financial institutions, typically do not have large and extensive branch and ATM networks. For this reason, and for competitive reasons, credit unions participate in ATM networks that provide their members with surcharge-free access to cash withdrawal services on a national basis. One of these networks is known as Acculink. Acculink is a credit union only network. It is comprised of 435 credit unions and provides access to approximately 1,700 ATMs on a surcharge-free basis across Canada.
You heard about a second surcharge-free network this past Tuesday, and you've heard about it earlier today, known as the Exchange network. Many credit unions participate in this network, along with a few banks. Through participation in one or both of these networks, and depending on the credit union of which you are a member, credit union members will have surcharge-free access to between approximately 1,700 and 2,700 ATMs on a national basis. This is an important service to members, which enables credit unions to maintain competitiveness with the ATM networks of the large banks.
A second point of contrast between credit unions and the banks is the manner in which credit unions set service fees for the financial services obtained by their member customers, including ATM access fees. Unlike the large commercial banks, which typically design and offer fee packages on a national basis, the credit union system is comprised, as I've said, of 498 credit unions, each of which design and provide their own fee packages separately and independently in the communities they serve. Since the array of packages is so vast, it is not possible to generalize about the nature and level of service fees that credit unions might charge their member customers for ATM access.
However, it is worth noting that the customers of credit unions are also the members and the owners of their credit unions. They annually elect the boards of directors of their credit unions. So if credit union members have views about the fees charged by their credit unions--favourable or unfavourable--they have a very direct way in which to assert these views at the level of the board of directors and senior management of the credit union.
I believe my third point is a point of similarity with the banking industry on the subject of efficacy of government regulation in this area. Currently the ATM surcharge, where it exists, is a fee that is both transparent and it is usually avoidable. In our view, regulation aimed at limiting surcharging is likely to undermine these aspects of the fee and would probably reduce the availability of ATM services to the Canadian public. We are not persuaded that the regulation of ATM fees would achieve positive results.
This concludes my remarks, Mr. Chairman. I'll be happy to answer any questions on this subject.
The simple answer is yes, we do look obviously to cover our costs as a private organization that is responsible to our shareholders and our customers. We obviously try to make sure we're covering the costs.
I mentioned the very large investment we made in completely upgrading and replacing our entire ABM network. Those are not investments we make lightly. We always have a business case for that. So we do look to recover our costs over time, and certainly not in any particular given year.
The issue of fees and costs in particular, I know, are of interest to this committee, and it's a complicated question to answer. First, I'm not about to disclose my cost structure, especially with my competition sitting right beside me. That is proprietary information, and we do compete strongly. I would say that because, as we all mentioned, a good proportion of our own customers use our own very large networks absolutely free, there is an element of saying that the charges being incurred by other banks' customers to use our network are more, obviously, than the cost to maintain that network. It is a rather complicated formula, which I don't think any of us would be willing to go into in any great detail, for proprietary reasons.
Today our NDP colleague introduced a private member's bill that wants to completely ban bank fees for the use of ABMs. Can you tell me if there are any other fees--for chequing accounts, etc.--that we at the federal level regulate or set at the bank? Does anybody know? I didn't think so.
The example you used, Mr. Hockey, was excellent, about the milk and how the big store works. My logic would say that if we're going to say you can't charge fees for ABMs, then you can't charge fees for chequing accounts or anything else.
At the end of the day you have a responsibility to your shareholders. My shareholders are the taxpayers. I'm assuming you would try to raise revenue through higher interest rates. Would that be an accurate statement? Is that one way you might be able to recoup some of those losses? Would you then just not invest in the thousands of machines for convenience that have been created around the country?
Does anybody want to comment on that?
Thank you, Mr. Chairperson.
Thank you all very much for your appearance today and for participating in this study of our committee on ATM fees and other bank fees and electronic banking.
I almost feel, sitting here, like I'm in some surreal world. Everything's great in the banking world, and there are no problems. I have to tell you, there's a big difference between Bay Street and Main Street.
Many of us represent communities where what you're telling us is just not the case. Either there isn't the access or the choice.... This notion about choice and competition is so far removed from the reality of so many Canadians that I think you should all go back and rethink what your purpose is.
You're not just like any other business. There's a Bank Act. You have a charter responsibility. You have an obligation to provide information. You can't just sit here and say this is all a matter of competition and good business practice. You have an absolute obligation to tell Canadians some basic facts.
Let me lighten up for a minute. My good colleague mentioned my bill. It's just been tabled today. It calls for changes to the Bank Act, and says it's quite possible to actually prohibit and eliminate fees in terms of electronic transfers of funds that are used now by the banks. Does anybody here disagree with this?
Voices: Oh, oh!
Ms. Judy Wasylycia-Leis: Does anybody support this bill?
All right. I didn't think so. I was hoping you'd ask the question, Mike, so I could save my time.
Unfortunately, here in Canada our banks are not willing to listen to public pressure, it seems, because when concerns have arisen in other countries there has been an appropriate response from the big banks, and here, clearly, you're not prepared to do that. That's why we have to go the legislative route, because Canadians are expressing concern. They are voting with their feet, because they don't have the kind of access you're talking about and they are being gouged.
So let me get at the question of gouging, and let me go through each of the major banks. What is the actual cost per transaction when one uses an ATM machine, whether it is one's own bank's or another's?
Mr. Hudon, can you give us the cost per transaction?
Now, in respect of the ATM issue, as far as fees are concerned, if we eliminate fees charged for ATM use, as is proposed by Madam Wasylycia-Leis' bill, we would then very likely eliminate, or greatly limit, the use of white label machines in the country. Is that a fair observation?
If there were no fees whatsoever to be charged for the use of bank machines, wouldn't that discourage the use of white label machines? Wouldn't it reduce the profitability to be derived from the presence of white label machines? Wouldn't it result in the loss of service to Canadians in areas such as my riding and others where there is not a plethora of options in rural communities--for example, where a white label machine might be available now, and it might not be available in the future?
Is that a fair observation, Mr. Hodgson?
I'd like to take it back and look at what we've heard so far in committee, both this morning and in other instances.
Prior to 1996 we had an evolving industry. The ATM industry had evolving service out there. We had a collective monopoly in the large financial institutions. The bank owned and controlled the Interac service, kept other people out by having huge or very high membership fees, and didn't permit people to charge convenience fees. Private sector operators who didn't have the full service, who wouldn't have been in the banking service, couldn't have access, couldn't compete, couldn't get in. So we did have a joint monopoly, or a collective monopoly.
With the decision of the board in 1996 lowering those membership fees, or permitting access to competitors through the Interac network, permitting convenience fees, we've had the evolution that we've seen now, where we have a variety of fees charged--from $3 to zero in most cases, depending on where you are--and a lot of choice, a lot of points of access.
I look at that evolution and say, if Parliament gets involved and all of a sudden we start regulating fees--or eliminating fees, as the NDP is suggesting--I would surmise that the risk is that we would reduce service, that we would reduce choice, and that we would reduce the points of service.
Do any of you disagree with that point?
If there's no disagreement, I'll accept that as your view of the facts. But there are a couple of areas where I do have concerns.
Perhaps I'll start with you, Mr. Westlake, with regard to the first area, the captive market. I recognize it's not the purview of Parliament; it's the purview of the individual operators, I guess--the universities, the airports, and those institutions. But where you have a large market of people who are pretty well captive to that locale and you limit the choice of machines in those areas, where you have one institution that bids on that market, then the clients of other institutions won't have free access to their money. They will have to pay convenience fees. It's similar to airports. That is a concern to me.
I would ask, in your discussions and through the Canadian Bankers Association or however, that you consider finding a fair way to give reasonable access to all institutions, from credit unions to the large banks, to give some access to those captive markets.
Is that possible?
Thank you, Mr. Chairman.
I'd like to get back to the issue of costs because that seems to be very important.
I must say that your strategy completely escapes me because people are telling us that they can't make the link between the cost of service offered and the fees that they must pay for that service. You're telling us that you do not want to reveal the cost for competitive reasons. We're getting somewhat contradictory statements here. Indeed, you're also telling us that you're extremely transparent, but you don't want to give us the figures. That seems strange to me.
I might have something to propose here and I hope that you will agree with it. Let's say each one of you, the banks and financial institutions, are asked to submit your figures to an independent organization, such as the Competition Bureau. That organization would keep that information confidential. It would simply give the committee the average that is calculated given the various figures. That organization could appear before the committee to tell us, overall, the difference in the cost of a transaction from one bank to another, from one institution to another, be it 25¢, 35¢, $1 or $3. Would you agree to this approach, in order to help us make the right decisions, or is legislation the only way to go for us to obtain that data?
I'll comment on cost generally, if you want.
To my knowledge, there is no accounting convention for the way that you account for ABMs. I can tell you that at Royal Bank we do not have a separate P and L that adds up our ABM costs. If we were even to submit it to your point--which I would not want to do--I can tell you that I don't know where you'd even start asking what to include.
We have all of the hardware, software, development, and innovation costs. We have the cost of getting money there. We have signage that we put on the machines. We provide security. We repair machines that are damaged. There is all of information technology, maintenance, general administration, service, staffing, and armoured truck services. We pay over $40 million a year to just get cash to the machines. There is research and development. There are premises costs. How much of your premises do you allocate to a machine, if it's sitting in a branch? There are communications and debit card issuing, when we issue the cards to the people. There are payments to retailers and how they go. There is the cost of funds, and the lost opportunity for money sitting in the machines.
What does an ABM cost? That is not an easy question to answer.
: Merci beaucoup, monsieur.
C'est terminé, Monsieur St-Cyr.
It would seem, however, Mr. Westlake, that by enunciating the various categories, as you have just done, you have presented yourself with a communications opportunity here.
A number of our witnesses are obviously concerned about banks' overcharging for said services. Without revealing any explicit, specific competitive numbers, there is an opportunity for one of you or all of you to communicate with those who are concerned about the degree of revenue you generate from said charges, and the degree of reinvestment and maintenance investment that you make in said service.
That's just a thought.
We continue with Mr. Del Mastro now.
Thank you, Mr. Chairman.
I'm going to reference the same January 2000 article that my colleague referenced earlier. A postscript to the article reads: “It hasn't happened, but someday you just might find an additional surcharge whenever you use any bank machine but your own”. So about seven years later, we see that actually has happened, and there is a fee that's charged whenever you use any bank machine other than your own.
My urban colleagues on my left and right are going to shut down here for a second, but I'm going to use a bit of a farm analogy.
On the farm, we'll string up an electric fence that keeps a cow in the field so it doesn't go into an adjacent field. I think we could actually draw a bit of a parallel and say the banks are putting up a bit of a fence around their own customers, and that there is a bit of protectionism in saying, “If you use our machines, we won't charge you; if you use anyone else's, we'll hit you for it”, as a customer retention method.
There are six major chartered banks in Canada. I understand you don't want foreign competition coming in and eating up your market share. You don't want near-banks, you don't want credit unions coming in and competing on the same level as you have. Perhaps you have additional costs and so forth. But amongst the six major chartered banks, would you consider an agreement whereby you wouldn't charge another bank's customers for use at your own ABMs?
Mr. Hockey, would you like to answer that? Would you consider that?
I would encourage you not to answer it while I ask my questions.
I have just a couple of quick questions. I'm sorry I came late. Some of this may have been addressed during some of your presentations, but since we have all the banks here, I have a general question. I guess I'll pick on one or two of you.
What would happen if this committee was able to convince the government to start regulating these bank fees and not allow the ability to charge Interac fees? What would happen? How would you reconfigure your cost system? Would that mean that other services would cost more money?
I think it's a fair question, because there are certain costs that you now have for those Interac machines. I think that's what we've heard. So you'd have to disperse or spread out the cost somewhere else, I would imagine, by charging for other services. Or does it mean that you would take a hit on the bottom line? I think it's a fair question. I think it's a black and white type of question.
I'll ask Mr. Hodgson; you're nodding your head. Mr. Hockey, I see you also nodding your head.
I'll direct it to Mr. Taylor.
Mr. Taylor, in the material you gave the committee, you said when the bureau investigated Interac—this is prior to the 1996 order—it was upset with a number of practices. The practices included “prohibiting charges for ABM use which discouraged the placement of ABMs and deprived consumers of the benefits of ABM deployment determined by market forces”.
Then your order comes on. Included in the order is “remove the prohibition on surcharges, which are now known as convenience fees”.
Then you go on in the body of your presentation and say, “...the Order did not in any way mandate or regulate the imposition of surcharges. However, allowing surcharges permitted operators of ABMs to determine and charge a competitive price for ABM services based on their cost, consumer demand”. The consequence is that in 1995 there were 12,808 ABMs, and in 2006 there are just 54,000-plus.
Then you finish by saying that “Canada has the most ABMs per capita and we are among the heaviest users of ABMs”.
That seems to be a clear, evidential-based analysis of what the removal of the fees issue is on the accessibility for Canadians to banking services.
Would you agree with that?
Thank you, Mr. Chair. I appreciate having a second round.
I'm absolutely amazed by some of the questions you were asked here today, particularly about costs. I think some people around the table think that the banking system in this country is a public service and not a for-profit business.
The banks were asked if they would disclose their costs. Would you then expect this committee to ask the grocery business to disclose their costs, so we would know that they were charging the proper prices for milk, bread, and all the other essentials of life? Would you expect us to ask the companies that retail clothing to provide their costs to make sure the public wasn't getting gouged, as some people would like to say, on the cost of certain clothing?
We've heard this morning and over the last few weeks that the banks have a special relationship with the Government of Canada. There has been an implication that you can sort of get anything you want.
I clearly recall that I disagreed with bankers on one issue in particular, and that was selling insurance through the branches. Could you remind me whether this government has made a comment on whether you're allowed to sell insurance through the branches?
Any of the bankers can feel free to answer that question.
Thank you, Mr. Chairman.
Before I begin, I'd like to introduce my partner Brian Crozier, our VP of business development.
Thank you for giving us the opportunity to appear before the House of Commons Standing Committee on Finance. We hope we are able to provide you with the information about how our company, UseMyBank, provides billers in Canada with real-time confirmation of payments made through their bank systems.
Today we come before you to tell our story and how it relates to the bill payments infrastructure, which is governed by the H6 rules; the electronic payments infrastructure, which is governed by the new E2 rule; and finally, the Bank Act as it pertains to competition and innovation being stifled by some of the major financial institutions and related associations in Canada.
UseMyBank is a company that is in the business of assisting billers and online merchants in providing instantaneous electronic payment confirmation. Through our joint venture with GPAY, which provided us with biller access through all the FIs at the time, we began to market our services to the largest volume billers and online merchants in Canada, including WestJet, Rogers, Telus, Fido, Sears, and many more.
In August 2003, UseMyBank was invited to present a solution to the CPA committee, which was looking at the new E2 rule called draft rule X. Draft rule X provided guidelines as to how the new electronic payment systems would be put in place by the members of the CPA. At the time, it was devoid of technology restrictions.
In December 2003, CIBC and TD, along with the Alberta Treasury Board, closed GPAY's biller account. There was no real reason given, short of the fact that they did not like the way GPAY was doing business with UseMyBank. We were being shut out of our market by FIs that were poised to compete with us.
After further probing, it was discovered that they did not like that in order for UseMyBank to facilitate the payment, we would act on behalf of the buyer, in essence acting as their agent to effect the payment at their FI's website, and receive a real-time confirmation that the transaction had been successfully completed. This is how we are able to get the real-time confirmation of the payment to the billers.
This forced us to use an inferior product called e-mail money transfers instead of the bill payment service. This form of payment is inferior, as the person sending the money could cancel the transaction once it had been sent from their FI. In addition, it now cost the buyer an additional $1.50, which went to their FI.
Originally, e-mail money transfer was a real-time account-to-account transfer service. We were able to deposit money within minutes to the GPAY account. In essence, it was the real-time system this committee had been looking for. The unfortunate part is that there are so many restrictions on this service that it is not a viable substitute for most businesses at this time.
In 2005, Scotiabank launched Interac Online. They sent a letter advising GPAY that they would close GPAY's biller accounts access in 30 days. The reason given was that they could do so without a reason on 30 days' notice. GPAY sued in Alberta and was able to get an injunction until September 2005. Then the BNS closed GPAY's accounts.
The net effect was like shutting off water to a restaurant and peddling bottled water to patrons. This forced GPAY to launch the first private action under section 75 of the Competition Act. In 2006, the Competition Tribunal dismissed GPAY' s application. The decision is now under the Federal Court of Appeal.
In addition, the CPA, to our dismay, introduced rule E2, which was a weapon for the banks to use against billers who decided to even think about using UseMyBank's services. It seems that they would like to have a monopoly on electronic payments.
This brings us to the present. The remaining banks have been friendly to date and are now undertaking reviews of GPAY's biller accounts and bank account access. It is not clear if GPAY will continue past the next 60 to 90 days, again leaving GPAY no recourse. This committee is one of its final hopes. This hope is extended to the many billers and online merchants who are waiting with bated breath to see if we win the ultimate right to provide an innovative technology that could streamline their businesses by providing real-time confirmation rather than waiting on some fax or EDI report from the bank.
In conclusion, we would like to make three recommendations to this committee. The first is a review of the H6 rules that govern the bill payment system. Treat the system as an infrastructure operated by the banks, but which is accessible by non-FIs such as UseMyBank. This would be similar to how the telephone lines were opened to outsiders. That has promoted a healthy competition among companies that has benefited Canadian consumers and businesses.
The second is that the E2 rules, which govern the electronic payment systems in Canada, should be reviewed. They force all electronic payments to be initiated by the bank's website, and no third party is allowed to be involved in the payment process. Although this rule looks simple, it has the net effect of stifling competition and innovation. The FIs are the only ones that effectively rule the system, therefore creating a monopoly sanctioned by the CPA E2 rule. This is totally contrary to what has been legislated as part of the 1996 consent order handed down on ATMs.
Last, with respect to the Bank Act itself, a revision was done that basically said that the banks are not allowed to close accounts or deny access to consumers who meet certain criteria. This was not extended to corporations, or if it was, it was not being interpreted that way.
In essence, the banks are allowed to pick and choose which companies are allowed to have bank account access and use their services. As such, there's no protection for corporations in good standing who wish to do banking at the same bank as their consumers. This would allow them to take advantage of cost savings, much the same way people would go to their local ATMs and pay no fees.
Banks in Canada are like the waterworks: they are an infrastructure to which each of us must be granted access.
We would like to thank you for your time, and will remain at your disposal to answer questions.
All right. Now, I didn't bring a speech with me, so we'll see how I do.
I'll first mention that I'm here representing about 7,500 Canadian members of ACORN and a number of people who are non-members but who are the working, and quite often struggling, families and individuals.
I have a number of concerns that I've been asked to address. The first one is that of NSF charges, and the fact that they've been increased to substantially high rates. The people I represent do not feel that NSF charges right now reflect the administration costs. We feel that NSF charges generally fall on working individuals and on those who are struggling to meet the bills. As a result, banks are directly profiting from struggling families and individuals.
You're going to find, as I go through this, that there are several aspects in which we feel this is happening. It's quite difficult for the people I represent to deal with.
I'd like to quickly comment on standard bank fees. From my understanding, if people have $1,000 or more in the bank, quite often they will avoid a number of bank fees that most people will incur. Why is it that when people have $1,000 in the bank, they don't have to pay these fees, but when people are struggling to pay the rent and they can't make that $1,000 income, they are the ones being hit with these bank fees?
Of course, as it was a hot topic earlier, I have a few comments on ATMs. Due to the presence of white label ATMs, we're finding that there are fewer and fewer bank-owned ATMs. Quite often we see that in low-income neighbourhoods. All of a sudden, a large population is finding it very difficult to reach those ATMs.
Additionally, banks at this point have been denying some people I know, and some of my neighbours, access to bank services in total. That goes into another aspect: privatized industry. I have people who can't go to a bank to cash their paycheque. They find themselves going to Money Mart or payday lenders. Banks are investing in these, turning customers away from their own banks and saying, well, you're going to have to go to this company, which is now charging rates outside of anything that banks are being legislated.
There's not much need to mention the fact that banks are not charging ATM fees in the U.S. and Europe. However, it is worth mentioning that, from what I've been told, TD right now is not charging ATM fees to their U.S. customers. Why are they unwilling to provide that same service to their Canadian customer base?
With regard to the future of the finance industry, I think we see that banks are investing in private organizations, allowing them to skirt around the legislation currently governing them. We would like to see some kind of legislation put into things like the white label, the sub-prime mortgage companies, and payday lenders. It's quite often the struggling individuals, the people the banks are denying due to their financial status, who are being forced to pay higher rates for the services that banks generally would offer.
The last thing to mention is that from the studies I saw in a report I received, Canadian banks have some of the highest service rates and some of the highest profit margins seen internationally. We're quite upset to see that banks would be putting their bottom line above customer service, denying customers what it is they're asking for just for the sake of protecting their $18 billion profit margins.
I think that's where I'm going to wrap it and pass it on to the next person. Thank you.
Mr. Chair, thank you for the opportunity to address you. I'm the COO of VisionCraft Development.
Nationally VisonCraft supports corporations large and small with a cheque system, EFTs, positive pay, and fraud audits. Today I am speaking with respect to the cheque-scanning portion of Bill C-37 and the Canadian Payments Association 006 standard.
There is a great deal of material, so forgive me if I don't go in depth with each item.
First of all, I should mention that we are non-partisan and we are revenue-neutral with respect to Bill C-37, so we may even be in a position to reap windfall profits with this legislation. I am speaking from my daily experience of implementing the CPA 006 and from my experience as a cheque designer.
Overall, we are not against the concept of imaging cheques except that there appears to be little benefit to consumers, be they individuals or corporations, or to those currently employed in moving the cheques across the country, who we expect may face job losses as the physical flow of cheques stops.
As the CPA 006 standard is currently implemented, consumers are being subjected to excessive cost and risk, and we see these increasing in the future. The portion that dealt with cheque scanning in Bill C-37 is one page. The equivalent U.S. legislation, which is generally called Check 21, is 18 pages plus a 144-page final rule, which provides recourse to consumers in the face of mistakes and losses caused by scanning. Check 21 does not require scanning or truncation of cheques. It is voluntary.
Substitute cheques in the U.S. have two warranties and an indemnity that they carry with them. This warranty is that the cheque is properly prepared and not to be paid twice, and the indemnity continues for one full year from the date the injured party learns of the loss. Bill C-37 on this topic provides no equivalent indemnity.
We also believe that the new physical cheque layout needlessly exposes individuals and corporations to a future of rampant fraud. The CPA 006 standard requires the removal of about 17 out of 34 of the most effective fraud features from cheques, exposing individual consumers, but more particularly businesses of all sizes, to highly increased fraud.
The banks are acting as a cartel in this matter, and no one is being given a choice. This is directly in contravention to what's happening in the U.S., where the universal commercial code requires that all cheque issuers put as many fraud features as possible on their cheques or they risk liability should a fraudulent cheque be passed.
It doesn't take a rocket scientist to understand that if there is increased fraud, there is increased liability. The banks are responding to this by attempting to reduce their liability for fraudulent cheques by not accepting responsibility for checking any feature on a cheque not detailed in their contract with their clients.
This was expressly discussed on the CPA site in early December 2006. For example, regarding double signatures, say a company has a rule that any cheque they issue over $10,000 must have two signatures and the cheques even say on them, “must have two signatures”. The cheque arrives at your bank, and it has only one signature and it is over $10,000, and thus obviously fraudulent. The bank would not accept any responsibility for cashing the fraudulent cheque unless the rule was detailed in the client's contract with the bank. This also extends to warning bans where, if it says on your cheque, “the background of this document is blue” and the cheque comes in and it's grey, obviously it's a fraudulent cheque. But if the background of this document is blue, and it is not in your contract with the bank, the bank is going to disavow any responsibility for cashing the fraudulent cheque.
The problem with this is that individuals and small entities will not be able to renegotiate their contracts with the banks, and they have no recourse. They cannot change the banks. All banks have the same rules for CPA 006.
So what happens if your company experiences increased fraud? If you are a company, your options are limited to buying new services from the banks. There is no recourse if you are an individual consumer.
So EFTs and positive pay are two options that a corporation could purchase, but neither is cheap. In addition, if fraud liability substantially increases the risk to the bank and costs them money, then we expect to see liability limits in the bank contracts. In other words, you have a $30,000 per cheque per occurrence for fraud in your account. When—
Thank you, Mr. Chairman. It's a pleasure to be back, and thank you to the committee for inviting us to appear today.
We've appeared many times before the committee, but I might take just a moment to introduce Retail Council again to the committee.
Retail Council is the voice of retail in Canada. We represent, from coast to coast, all the various different formats, specialties, and types of retailers in the trade. Our members sell almost $400 billion a year, they employ almost two million people, and they operate their businesses out of almost a quarter of a million establishments. So we're a big business marked primarily by small individual enterprises. So it's kind of a conundrum: a large business with a lot of small businesses within it.
Mr. Chairman, I would like to point out that you have received our brief in advance. I also want to mention that my remarks will focus on three key points: why an ABM is installed in a store; our views on ABM user fees; and finally, the need to review the entire payment system in Canada.
Let me start first of all with the business case for ABMs in stores.
They were initially offered by retailers when the opportunity became available after the 1996 decision. What we have found is that today for most store formats and for most product categories, there simply is no business case for installing an ABM in the store. The reasons for this are laid out in the submission that we provided in advance.
What we do see is that cash-dispensing automatic bank machines are most commonly found in a few types of specialized locations—
Anyway, when members get our submission, they will see that we've laid out a series of reasons why there is simply no business case for most retailers to put a cash-dispensing ABM in their store. Typically these are found in a few specialized types of locations that meet one of two criteria. Either there's a high flow of traffic for an extended period of time, typically 24 hours a day, 7 days a week, the kinds of places you were talking about with the last panel, or in situations where the customer will pay a convenience fee for the opportunity to use the machine in that area.
One of my colleagues, I think in his zeal to help me with this, provided me with the information that strip clubs are where you find the highest convenience fees. This was news to me.
A voice: But not to your wife.
Mr. Peter Woolford: I knew I shouldn't have said anything.
When we look at the market today, we do not expect to see any significant change in this into the future. This is a mature market now. We do not expect to see ABMs gravitating back into retail stores at any point in the future, as far as we can tell.
Under those circumstances, essentially we have a neutral position on the question of convenience fees. We think it's not something that really affects our members or their business models or their operations in any significant way.
We would observe, as I think the previous panel did, that as we look at the economics of this and as a business that has gone into it and left it, if you put some constraints on fees you will see fewer ABMs offered to the public. I think that's just an outcome of what we've looked at, from our experiences as people who have offered it in the past.
Let me take a last minute to address the wider issue of electronic payments. We're delighted that this committee has cast the debate in that wider framework. We believe Canada has a good payment system, but our members are increasingly unhappy with the cost and the quality of the service they are receiving in some areas of the payment system, and they know ultimately it is the consumer who pays those costs, whether it's directly in the fee or whether it's hidden as a cost of doing business for the operations that have to use the payment system.
As well, we're seeing that the payment system is evolving and changing rapidly. There are new technologies, new players, new services. All of this is happening very quickly, and yet it's taking place without any public oversight or without any public consultation on that process. We're a little surprised, frankly, that Canada has been so passive in this area in contrast to what we've seen in other countries. We've seen other countries act. We've seen other countries really look at their payment systems in a very careful way.
In conclusion, my principal recommendation to the committee is that we believe Canada really needs a thorough review of the payment system with all the stakeholders at the table and a really thorough examination of the various costs and benefits to all the players.
Thank you, Mr. Chair.
Now my clients--large and small business and individuals--are open to excessive amounts of fraud because all of these fraud features are taken off their cheques, as opposed to in the U.S., as I said, where they're expected to put them on. What do we do? They're going to charge extra fees now for the return of cheques, when that used to be included in your bank fees. You got your cheques back. Corporations got their cheques back. Now they're not going to be getting their cheques back.
What happens when there's a cheque scan and it's incorrect? We have no recourse built into Bill , whereas in other jurisdictions they have built-in indemnities and warranties and the ability to get re-credits quickly and within a standardized process.
We need choice returned to consumers so they receive their cheques or scans. We need fraud features returned to the cheques. We need indemnity attached to scanned cheques. There are going to be large fees charged. ATM fees are nothing compared to what they're going to be charging for all the extra features that you'll have to implement in order to prevent fraud in your company. You'll have to go to positive pay, maybe at some banks as much as $1 a cheque.
Right now to view your scanned cheque online, just for my TD Bank account it's $1.50 per cheque per view. The Royal Bank, the last I heard, is $2.25 per cheque per view.
That's a tough one. What we do know is that retail is a customer-driven business. What the customer wants, the customer gets. Merchants who have tried to charge the customer for taking their money have quickly found that the customer says no. So that really hasn't picked up or gone very far very quickly. There are just so many options out there that it has proven to not be terribly attractive.
On the effect on ABMs, our sense is that the advent of the Interac direct payment service itself greatly reduced the customer's demand for cash. Typically you don't have a full-function ABM inside a non-bank location. Essentially you have a smaller, cheaper cash-dispensing machine--that's all it will do. You can't pay your bills or make deposits at one of these cash-dispensing machines; you can only withdraw cash. So with the advent of Interac direct payment, the customer can pay directly using their card rather than going to the machine and paying a fee to withdraw money.
Second, as I mentioned in my response to one of your colleagues, the opportunity to get cash back on a transaction means that if you need cash, many of the merchants today who have a large cashflow are quite happy to give you cash back when you make a purchase in the store.
Third is that we've seen a variety of other payment options and financial service options provided by the financial service providers, both online and in other formats.