By David Johnson
On Tuesday, MP Michelle Rempel Garner announced that she and MP Adam Chambers had submitted a request to the Competition Bureau to investigate several major Canadian banks regarding their usage of Interac.
My colleague @adamchamb and I have asked the @CompBureau to investigate e-Transfer fees and the payments industry.
You can read our full submission and watch eyebrow raising testimony from an RBC executive at committee yesterday, in the link that’s in the reply. pic.twitter.com/V195kBxreo
— Michelle Rempel Garner (@MichelleRempel) October 29, 2024
In a letter to Commissioner Matthew Boswell, Rempel Garner expressed her suspicions of the anti-competitive practices of the five major Canadian financial institutions that own Interac.
Interac is an interbank network that facilitates quick electronic transfers of money. It serves as the de facto Canadian debit card system, with 88 percent of Canadians using its services and over one billion annual e-transfers. The non-profit Interac Corporation, a cooperative venture among RBC, CIBC, Scotiabank, TD, and Desjardins, owns this vital network.
By controlling such a critical element of the Canadian financial industry, these five companies have established a position of dominance. In her letter, Rempel Garner reminded the commissioner that abusing this dominance to undermine natural market forces constitutes a violation of the Competition Act, particularly following recent amendments designed to strengthen the bureau’s oversight.
Each time an electronic financial transfer is made through Interac, the user’s bank incurs a fee. During an Industry Committee hearing on Monday, Rempel Garner questioned RBC executive and Interac board member Ramnesh Siromani about the fee structure for financial institutions. She revealed that banks are charged on a tiered basis, ranging from 6 to 43 cents per transaction, with lower fees for banks with higher transaction volumes. This structure effectively penalizes smaller banks with higher fees.
When presented with this information, Siromani claimed he was unaware of the specifics of Interac’s pricing model despite being a board member. He maintained this position during MP Chambers’ subsequent questioning.
Rempel Garner then asked, “Given that, per your admission, Interac is the dominant player in this market, do you not think that this committee should recommend the competition commissioner look at a volume-based pricing schedule for e-transfers that might price competitors out of the market?”
Siromani simply reiterated the innovative nature of the Interac payment system and suggested that the corporation might “over time be introducing efficiencies to this market.”
The following day, Rempel Garner and Chambers formally recommended to the competition commissioner that an investigation be conducted. They argued that the higher fees imposed on small banks undermine competition and provide the owners of Interac an unfair advantage through their platform. Without any real alternatives to Interac, small banks are potentially trapped in a situation where they must pay disproportionately high costs for access to the electronic payment system.
The situation is exacerbated by the gluttonous profits made by Canadian banks, which rake in billions annually due to a lack of competition. This oligopolistic structure enables them to set prices without fear of losing customers, ultimately leaving consumers to bear the financial burden. Furthermore, Canadian CEOs often command salaries exceeding $10 million, prompting the question: who truly benefits from this system? Compounding the issue, TD Bank was recently found by U.S. courts to have committed money laundering fraud amounting to billions, yet shockingly, no one faced jail time. This raises serious concerns about accountability within the banking sector and whether regulators can effectively manage these powerful institutions.
Any hope for meaningful reform in the banking sector will not come from the Competition Bureau in Canada, which in the past 50 years hasn’t managed to implement one serious substantive change in the oligopoly banking system or in the telecom and petroleum monopolies that dominate in Canada. More likely, change will have to come from legislative efforts that open up Canada’s banking market to more foreign competition.
It will be interesting to see if Michelle Rempel Garner and Adam Chambers are up to the job of doing this when the government changes.
Photo: Stockcake