Ivison: Conservatives warn that transaction costs for banks are too high

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A Conservative government will likely target the banking sector to cut fees and increase competition, Michelle Rempel Garner told John Ivison.

Rempel Garner and her colleague Adam Chambers raised the issue of wire transfer fees this week in a parliamentary committee, which has since passed a motion calling on the Competition Bureau to investigate a situation where banks are making big profits from high fees and possibly use their dominant market position to limit competition.

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But the Conservative MP said wire transfers are just one area where consumers are getting soaked. “The electronic funds transfer system is just a drop in the bucket of the broader issue of competition in the banking sector,” she said.

“This doesn’t sound like a sexy topic. It is often not at the forefront of political debates. But it actually underlines both the affordability issues that Canadians are facing (and) also these emerging concerns, which are very valid, about Canada’s economic productivity. Is our economy sustainable? Will the country be able to protect jobs or create jobs?

“I think it’s very fair to note that something we haven’t talked about yet is the impact of some of these transaction costs… when you add that up for every small business and every consumer in the country. I think it’s a fair question to ask whether that is actually a macroeconomic determinant of Canada’s economic growth and productivity right now. The long answer to your short question is yes, of course the Conservatives are going to take action on this,” she said.

She said another Conservative MP, Ryan Williams, the party’s trade and competition critic, has introduced a private members bill, the Consumer-Led Banking Act, which aims to introduce a more open banking system in Canada and is currently in the committee is discussed.

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The e-transfer issue came to light this week at a meeting of the industry committee looking into credit card practices in Canada.

One of the witnesses, an RBC executive named Ramesh Siromani, also acts as director of Interac, the leading e-transfer provider. Rempel Garner and Chambers asked him about the pricing structure that governs Interac’s business (the wire transfer provider is actually owned by the big banks).

Siromani claimed he was not aware of the details, but the two conservatives have managed to figure out that it is volume-based – meaning the big players like RBC and TD pay less to Interac than smaller players. Chambers said anecdotally that he has heard of big banks paying 6¢ per transaction, while smaller banks pay as much as 43¢ – figures that were not contradicted by Siromani. Canadians will be charged between $1 and $1.50, although for many people this payment is included in other account fees.

Rempel Garner said the service is used by 88 per cent of Canadians and there were more than one billion transactions in 2022.

‘But here’s the problem. From what we’ve heard, big banks get a big price discount for that service, compared to what smaller financial institutions get paid or have to pay. And that’s a problem because … it’s harder for (smaller institutions) to get into this space because they pay higher fees. It’s not just a problem for consumers, it’s also a problem for small businesses and financial sector startups that want to enter this space and disrupt it, because the banks, as far as I can see, don’t really have an incentive to lower prices by creating more competition in the market,” she said.

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Rempel Garner hopes the motion passed by the industry committee on Thursday means the Competition Bureau will look at wire transfer prices and the wider payments sector.

Canada has long been revered internationally for its stable banking sector that weathered the 2008 financial crisis thanks to the small number of well-capitalized banks.

But Rempel Garner said the long-standing assumption that Canada cannot have high-quality, low-cost banking is incorrect.

“These are two completely different buildings. And I think this is a principle that the banks want to perpetuate. It’s like, ‘we can’t have more competition in this area because that would mean worse banking’. Come on. That’s bull for the most part,” she said.

She criticized the Liberal government for talking about compensation for several years but not acting.

“The government should have tackled these kinds of issues. They’ve had nine years. And when I think about how far and how behind Canada is compared to countries like Britain, I just don’t understand why they haven’t taken steps in this regard. This is low-hanging fruit,” she says.

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Ivison pointed to research showing that the total of all bank charges last year was $17 billion study by North Economics which claims that Canadians are overcharged by $8.5 billion annually compared to consumers in Britain when it comes to all kinds of banking fees.

“It’s the average Canadians who pay that. They are smaller financial institutions. They are small businesses. It’s also emerging startups looking to modernize the financial services industry that are just saying, ‘look, we can’t plug into this system in Canada because of the rental policies that the government refuses to continue.’ So giddy, we need some changes.

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