Competition Bureau must investigate e-Transfer fees, payments industry
My colleague Adam Chambers and I have asked for an investigation. Here's why.
The electronic payments industry in Canada has come under scruinty in recent years, and for good reason.
The biggest banks and tech giants tend to dominate the space. Given that most advanced economies now deeply rely on this industry for transacting business, the fees they charge, the data they take from consumers, the stranglehold they often have on technological adoption, and the potential for abuse of dominance to prevent competition are arguably a cause for concern. That’s because of the massive cost that potential anti-competitive behaviors could have on individual consumers and the broader economy alike.
Today, my colleague Adam Chambers, the Member of Parliament for Simcoe North and I wrote to the Competition Bureau to examine one particular aspect of the payments industry; e-Transfers. This request follows eyebrow raising testimony from an RBC executive (who is also RBC’s nominee on the Board of Directors of Interac) at a Parliamentary Committee yesterday. You can - and should - watch my back and forth with him, here, and my colleague Adam’s round with him here, respectively.
The Competition Bureau very recently gained expanded powers to investigate potential anti-competitive behaviors, and seem willing to use them. It’s our hope that they’ll use them in this case, and perhaps other aspects of the payments industry too.
Certain industry players in Canada have long relied upon conflating being pro-business with a government’s willingness to offer and sustain anti-competitive rent seeking policies. That conflation must be responsibly deflated for Canada’s economy to sustainably grow, and for affordability to be restored to consumers.
This issue impacts you, dear reader. You can read the reasons why in the letter we wrote, below.
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October 29, 2024
Dear Commissioner Boswell,
Re: Request for Review of Potential Abuse of Dominance scenario, Interac e-transfer fee structure and the increased costs paid by Canadian consumers and businesses
Earlier this year, changes to the Competition Act were made ostensibly to protect Canadian consumers and businesses from harm from the abuse of dominant positions.
Your website describes "abuse of dominant position" as when a dominant firm engages in anti‑competitive practices or conduct that substantially lessens competition in a market or is likely to do so. These practices ultimately cost Canadian consumers and businesses more.
It goes on to state:
"Competition among firms underpins a robust economy, incentivizing the creation of value and rewarding entrepreneurship and innovation. When firms compete on the merits, market forces generally deliver the most efficient and beneficial economic outcomes for society.
In some cases, however, dominant firms can frustrate this process by engaging in conduct that undermines competitive market forces, leading to inefficient outcomes. In these rare circumstances, the Bureau may rely upon the abuse of dominance (and other) provisions of the Act to address specific conduct and restore the competitive process."
We are writing to you with a request to review a suspected (but unproven) abuse of dominant position on a service provision held by Canada's major banks and Interac, which these institutions also own.
The scenario we'd like you to investigate lies within the governance of Interac's e-Transfer payment service, the fees Interac charges to financial institutions for facilitating e-Transfers, the fees financial institutions charge to clients, and how this interaction and governance structure may be creating an anti-competitive environment for both a) competitors to Interac's e-Transfer service to emerge and b) providing an unfair advantage to Canada's largest financial institutions.
As background, the scenario we're referring to is as follows.
Interac e-Transfer (an electronic money transfer) is a popular digital payment system in Canada that allows users to send, receive, and request money electronically between personal or business bank accounts without needing to know the recipient's banking details. For example, someone using Interac's e-Transfer service might use it to pay for a service like a pet sitter, send a gift to a child, or pay for a multitude of other services. Interac's website states that 88% of Canadians have used their service, with well over one billion e-Transfers happening yearly.
Financial institutions charge clients who use this service a fee. Depending on the package a client subscribes to with a financial institution, the fee the institution charges their client per transaction can be between $1.00 and $1.50.
Interac also charges financial institutions a fee for facilitating the e-Transfer. This fee structure is presently a closely guarded secret (though we would consider posing a motion to one of our respective committees to compel this information should circumstances require us to do so, given the information that follows).
At the House of Commons Standing Committee on Industry and Technology on Thursday, October 28, 2024, Ramesh Siromani, Executive Vice President of Cards, Payments & Transformation at RBC and member of Interac's Board of Directors, was questioned about this fee structure.
In two rounds of questioning, Mr. Siromani admitted that a transaction volume-based tiered fee structure existed for the fee Interac charges to financial institutions for facilitating e-Transfers, as opposed to a flat-rate fee. Anecdotally (i.e. the actual fee schedule is currently unavailable to the public) and in confidence from stakeholders, we have heard that the range between the highest and the lowest fee in this structure varies dramatically, with the biggest banks in Canada being offered dramatically lower rates than smaller institutions. In this same meeting, Mr. Siromani also admitted that Interac is the dominant market player in the e-Transfer facilitation industry in Canada.
The potential problem with this scenario is this: Canada's big banks effectively own Interac, which means they could influence Interac's rates for the facilitation fees they charge to financial institutions to facilitate e-Transfers. Interac is the dominant player in the e-Transfer facilitation business. It may benefit these banks to keep a preferential volume-based facilitation rate for e-Transfers, because it allows them to accrue larger profits on the differential between the rate they pay Interac for facilitating the transaction and what they charge to their clients for using the service, as compared to smaller financial institutions. This problem, in turn, could deter competition between financial institutions on the fees charged to clients for using an e-Transfer service, thus potentially keeping those fees that Canadians pay to transfer money artificially high, or keep Canadians artificially attached to financial institutions that can are able to offer clients unlimited “free” e-Transfers due to preferential rates from Interac.
Also, because the big banks effectively own Interac and profit off the facilitation fees they charge, they are likely not to be motivated to see other potential new entrants into the market in this space. This scenario could also deter innovation and the development of a competitive environment with multiple players offering e-Transfer facilitation services that could lower fees charged to clients who use an e-Transfer service.
Said differently, the issue is one of transparency and governance. Interac's fee schedule for facilitating e-transfers is secret, and through testimony, we now know that it is in fact a tired schedule that is volume based, likely skewed in the favour of Canada’s biggest banks. A majority of Interac's board includes representatives who also hold senior positions within Canada's financial institutions, and who are nominated to the board by those same financial institutions. We are concerned that this situation could have resulted in inherent conflicts of interest with respect to pricing on e-Transfer facilitation fees and in turn, abuse of a dominant position in the space.
The e-Transfer business is rapidly growing in Canada, underpinning many business and personal transactions. A non-competitive environment in this space could impact the Canadian economy far beyond Canadians who use the service now. The government has an objective to modernize the payments system in Canada to lower transaction fees for Canadian consumers and businesses. Through Payments Canada, Interac has been engaged to help build this new infrastructure. It, therefore, behooves the public to know as soon as possible if abuse of dominance or other anti-competitive behaviours is at play in the e-Transfer industry.
We also note that the e-Transfer product is only a small part of the broader payments industry, which we have heard many complaints about recently, including the fact that some payments companies are choosing not to pass along savings from a recent federal government deal with Visa and Mastercard to the intended recipients (small businesses). As such, while we are highlighting a perceived competitiveness issue within the e-Transfer industry, we encourage you to examine the broader payments industry writ large.
This is particularly important because the federal government has failed to deliver on promises to crack down on “excess bank fees”. So, as legislators, we need to understand what—if any—new regulations are needed in this space, particularly given that your office has scrutinized Interac and its relationship with Canada's biggest banks on other significant occasions. So in addition to ascertaining if any aspects of the Competition Act have been violated, the findings of your investigation into this matter will no doubt help us in our work.
Sincerely,
Hon Michelle Rempel Garner, PC MP, Member of Parliament, Calgary Nose Hill
Member, House of Commons Standing Committee on Industry and Technology
Adam Chambers, MP, Member of Parliament, Simcoe North Member,
House of Commons Standing Committee on Finance
*updated to reflect final version of letter, which can be found here.