Friday, April 13, 2007

Bankers to Testify Next Week on ABM Fees

Bloomberg, Sean B. Pasternak, 13 April 2007

Executives from Royal Bank of Canada, Toronto-Dominion Bank and other Canadian lenders will testify before a parliamentary committee next week to discuss bank-machine fees and electronic payments.

Royal Bank's James Westlake, Toronto-Dominion's Tim Hockey, Canadian Imperial Bank of Commerce's Sonia Baxendale and others are scheduled to appear before the House of Commons Finance Committee in Ottawa on April 19, according to a government Web site. The executives head the banks' consumer lending units.

Finance Minister Jim Flaherty has urged banks to lower automated-teller fees, particularly for students and seniors. Lenders usually charge transaction fees when non-clients use their machines.

Flaherty said on April 11 that he expects to hear further announcements from the banks on their fees ``within days,'' according to the National Post and other newspapers.
The Globe and Mail, Tara Perkins, 13 April 2007

Royal Bank of Canada insists its decision to rejig one of its banking packages to decrease bank machine fees is not a concession to Finance Minister Jim Flaherty.

“It's a fairly massive overhaul for us that we've done in the last year in this space and it's interesting the way the timing worked, but we've been working on this for over a year,” said Jim Westlake, the head of RBC's Canadian banking division.

Mr. Flaherty has been pushing the banks to justify the fees they charge when customers from other banks use their automatic teller machines. In a meeting with chief executive officers of the big banks, the minister focused on the cost to groups such as students and seniors.

On Wednesday, he said he was encouraged by what the banks were saying and believed “some announcements will be coming quite soon, so we're talking days, not months.”

“I have no idea what he was referring to,” Mr. Westlake said in an interview Friday. “This is business as usual for us.”

Canada's biggest bank announced Friday morning that it has “enhanced” the RBC Signature No Limit Banking account, removing the cap of 65 transactions a month. The account will now refund the RBC fee for three non-RBC machine withdrawals per month, instead of one.

The bank is also tweaking some of its other packages. The headline on its news release was, “Accounts offer enhanced access to ATMs, free banking for students & seniors.”

RBC CEO Gordon Nixon told reporters at the bank's annual meeting this year that the ATM fee issue had become regrettably politicized, and some bank executives have bristled at the suggestion they might cave in to Ottawa's demands.

Mr. Westlake said the most important element of the new fee lineup for the bank is the move toward a loyalty pricing model.

That's similar to the bundling model used by companies such as Rogers Communications Inc.

“We're now going to reward customers very directly who have more than one relationship with us,” Mr. Westlake said. He added, for example, if customers have a mortgage, an investment with RBC and a credit card, they could get free banking.

Canada's banks are restricted from what is called coercive tied selling, but Mr. Westlake said bundling is allowed. “What we're not allowed to do is say ‘the only way we will give you a mortgage is if you take a credit card.' That would be tied selling.”

Mr. Westlake said the moves are expected to have a positive impact on the bottom line in the near term.

“We certainly expect to do more business,” he said. “Obviously, we'll be rebating some fees to existing customers to recognize their loyalty, [but] we think we'll more than make up for that in new business that we'll do.”
The Globe and Mail, Patricia Best, 10 April 2007

Who says there's no such thing as real rivalry among Canada's big banks? Not long after Ed Clark took the pulpit at Toronto-Dominion Bank's annual shareholder meeting recently, where he preached the virtues of TD's affordable student packages (cheaper than a latte!), Bank of Montreal hastily assembled a retaliatory press release. "Some banks boast that their student banking plan costs $3.45 -- less than the cost of a latte -- for 25 transactions a month," BMO sniped. "Bank of Montreal offers a better plan -- 30 transactions per month absolutely free!!" Note the double exclamation marks --which we assume denotes extreme emotion.

This is a rarity in the clubby world of Canadian banking, where executives typically take pains not to have any sort of disagreement -- no matter how minor -- in the public eye. But one official at BMO couldn't resist taking another poke at Mr. Clark's speech, especially in light of the controversy generated recently over the fees banks charge on transactions made at automated banking machines. "Sounds like old Ed Clark might be getting too comfortable in that overstuffed green chair of his," the BMO insider told a Globe and Mail reporter, pointing out that students on the TD plan are spending more on fees in a year than it would cost to buy two dozen beer. "Forget the designer lattes. Over a year, that'll buy you and your friends a two-four with enough change left over for [Tim Hortons] the next day."

(By comparison, Bank of Nova Scotia charges students $1.25 a month for a package that offers 12 free transactions. Royal Bank of Canada offers 25 transactions as part of a $3.50 monthly package, while at Canadian Imperial Bank of Commerce, students can pay $1.95 for 10 transactions.)

Readers will recall that Finance Minister Jim Flaherty wrote the banks a letter in December, asking them to justify their fee structure, and then met with industry executives in Toronto early last month to express his concern about cheap access to banking services for seniors, students, low-income Canadians and people with disabilities. The banks didn't make any concessions. Mr. Clark, however, acknowledged in his speech that Mr. Flaherty raised a "legitimate concern" with respect to easy ABM access. Mr. Clark noted many students have only one ABM on campus -- often of the privately owned, "white-label" variety. As a remedy, he pledged to install ABMs on or near all of Canada's major universities, which would mean adding about 50 machines to the bank's network. Mr. Clark honoured the industry's gentleman's rules, choosing not to mention BMO operates ABMs on just 17 campuses.