Financial Post, Duncan Mavin, 27 February 2007
Top bank executives are preparing their case this week for the defence of automated banking machine fees ahead of a meeting to discuss the controversial charges with federal Finance Minister Jim Flaherty scheduled for Monday.
Mr. Flaherty has asked Canada's big banks to explain why they charge the fees when some customers of banks in other countries do not have to pay anything.
The Finance Minister will face stiff opposition from the bankers, who are working on arguments they say show targeting the fees is unfair.
For instance, a minority of transactions result in charges, and the fees in any case reflect a cost of operating the machines, banking insiders argue.
They also point out that banks in other countries charge higher fees for other services.
As well, they note that the rapid expansion in the number of non-bank cash machines -- known as white label machines -- which charge higher fees than the banks, shows Canadians are willing to pay for the convenience of using ABMs.
"These fees are avoidable," said a senior executive of one of the biggest banks in Canada.
"If Finance is serious about this issue, they should launch a full-scale ad campaign to better-educate consumers on money-saving tips, such as using your own bank's machines, asking a store cashier for cash back on a debit transaction and making fewer, larger withdrawals," said another senior banker.
More than 75% of bank ABM cash withdrawals don't result in charges because they are by customers using their own banks' ABMs, according to the Canadian Bankers Association.
Canadians can also obtain money without incurring fees by taking cash back when they buy goods with their Interac debit cards. Almost two-thirds of Canadians who use Interac have taken cash back with a transaction.
The banks say they charge fees to customers of rival banks because there is a significant expense involved in having a network of ABMs.
Customers of Canada's banks have better access to ABM machines than bank customers anywhere else in the world. There are more than 1,600 ABMs per million inhabitants in Canada, compared with only about 1,300 per million in the United States, for example.
But that network has come at a cost to the banks. Toronto-Dominion Bank has just completed a project to upgrade 2,500 ABMs at a cost of $250- million, for instance.
Some banks say it costs as much as $500,000 to install a new machine, and then there is the cost of cleaning them and paying security firms to fill them with cash.
If the banks were not allowed to charge fees, there would be no incentive to maintaining an extensive network, said one executive. Instead of paying for your own ABMs, "why not allow your customers to ride on someone else's investment," he asked.
Some bankers say the government should allow individual financial institutions to determine their own ABM pricing structure. HSBC Canada, for example, has a deal with Bank of Montreal under which it has bought access to BMO's ABMs and has chosen not to charge a fee to HSBC customers.
The banks are also expected to point out to Mr. Flaherty next week that the highest fees are charged by the white label machines, such as those found in convenience stores and bars.
The white label market emerged in Canada after an order by the Competition Bureau in 1996 and was intended to increase the accessibility of ABMs. The bankers argue that the proliferation of the white label machines -- there are 35,000 non-bank ABMs compared with less than 16,000 that belong to the banks -- shows that Canadians are willing to pay for convenience.
Furthermore, Canadian banks argue that claims in other countries such as the United States and United Kingdom that banks do not charge customers for ABM transactions are misleading. Only a handful of U.S. bank customers get free ABM services. Although banks in the U.K. generally do not charge a fee for ABM usage, consumers and regulators there have complained vociferously in recent weeks about high levels of charges in other areas, such as fees for overdrafts and late credit card payments.
One Canadian bank executive said ABM fees charged by banks here are transparent. He also hinted that if the government put a ban on the bank's charging those fees, they might look elsewhere to cover their costs.
"We have to deliver a return to shareholders," he said. "If you give away ABM fees, you've got to get that from somewhere else."
Top bank executives are preparing their case this week for the defence of automated banking machine fees ahead of a meeting to discuss the controversial charges with federal Finance Minister Jim Flaherty scheduled for Monday.
Mr. Flaherty has asked Canada's big banks to explain why they charge the fees when some customers of banks in other countries do not have to pay anything.
The Finance Minister will face stiff opposition from the bankers, who are working on arguments they say show targeting the fees is unfair.
For instance, a minority of transactions result in charges, and the fees in any case reflect a cost of operating the machines, banking insiders argue.
They also point out that banks in other countries charge higher fees for other services.
As well, they note that the rapid expansion in the number of non-bank cash machines -- known as white label machines -- which charge higher fees than the banks, shows Canadians are willing to pay for the convenience of using ABMs.
"These fees are avoidable," said a senior executive of one of the biggest banks in Canada.
"If Finance is serious about this issue, they should launch a full-scale ad campaign to better-educate consumers on money-saving tips, such as using your own bank's machines, asking a store cashier for cash back on a debit transaction and making fewer, larger withdrawals," said another senior banker.
More than 75% of bank ABM cash withdrawals don't result in charges because they are by customers using their own banks' ABMs, according to the Canadian Bankers Association.
Canadians can also obtain money without incurring fees by taking cash back when they buy goods with their Interac debit cards. Almost two-thirds of Canadians who use Interac have taken cash back with a transaction.
The banks say they charge fees to customers of rival banks because there is a significant expense involved in having a network of ABMs.
Customers of Canada's banks have better access to ABM machines than bank customers anywhere else in the world. There are more than 1,600 ABMs per million inhabitants in Canada, compared with only about 1,300 per million in the United States, for example.
But that network has come at a cost to the banks. Toronto-Dominion Bank has just completed a project to upgrade 2,500 ABMs at a cost of $250- million, for instance.
Some banks say it costs as much as $500,000 to install a new machine, and then there is the cost of cleaning them and paying security firms to fill them with cash.
If the banks were not allowed to charge fees, there would be no incentive to maintaining an extensive network, said one executive. Instead of paying for your own ABMs, "why not allow your customers to ride on someone else's investment," he asked.
Some bankers say the government should allow individual financial institutions to determine their own ABM pricing structure. HSBC Canada, for example, has a deal with Bank of Montreal under which it has bought access to BMO's ABMs and has chosen not to charge a fee to HSBC customers.
The banks are also expected to point out to Mr. Flaherty next week that the highest fees are charged by the white label machines, such as those found in convenience stores and bars.
The white label market emerged in Canada after an order by the Competition Bureau in 1996 and was intended to increase the accessibility of ABMs. The bankers argue that the proliferation of the white label machines -- there are 35,000 non-bank ABMs compared with less than 16,000 that belong to the banks -- shows that Canadians are willing to pay for convenience.
Furthermore, Canadian banks argue that claims in other countries such as the United States and United Kingdom that banks do not charge customers for ABM transactions are misleading. Only a handful of U.S. bank customers get free ABM services. Although banks in the U.K. generally do not charge a fee for ABM usage, consumers and regulators there have complained vociferously in recent weeks about high levels of charges in other areas, such as fees for overdrafts and late credit card payments.
One Canadian bank executive said ABM fees charged by banks here are transparent. He also hinted that if the government put a ban on the bank's charging those fees, they might look elsewhere to cover their costs.
"We have to deliver a return to shareholders," he said. "If you give away ABM fees, you've got to get that from somewhere else."
__________________________________________________________
Financial Post, Paul Vieira, with files from Duncan Mavin, 27 February 2007
There is more than just old-fashioned bank bashing going on in the current showdown between Ottawa and the country's lenders over ATM fees.
"The government seems intent on making this a political issue and no bank wants to get involved in politics," said a senior banking executive yesterday. "Is this what's good for consumers or is this about politics?"
The current probe by the Finance Minister, Jim Flaherty, or the pending study by MPs on the House of Commons finance committee, is not about making tangible changes to the way banks charge their customers for using automated tellers operated by another lender, observers say.
"There is no valid role for government intervention in ATMs. By and large, it is a case of Canadians who can't be bothered to walk a few hundred yards to another branch," said Laurence Booth, a professor at the University of Toronto's Rotman School of Management, noting there is an ATM network among credit unions that does not charge withdrawal fees.
Instead, there is a bigger game at play in Ottawa. The Conservatives are trying to distance themselves from the banks in the lead-up to a possible election, as well as raise the profile of the NDP; and legislators are issuing an invite to the banks to give up something now in return for favourable legislative changes down the road.
It was NDP leader Jack Layton that pushed ATM fees onto the federal agenda. Mr. Flaherty, at the NDP's behest, said he would look into that, and that has led to him meeting with bank chief executives next week. The get together was prompted after Mr. Flaherty suggested he was given an unsatisfactory response from the industry lobby group, the Canadian Bankers Association, about ATM fees.
By pursuing the issue, the Conservatives are strengthening the hand and relevancy of the NDP. For the Stephen Harper-led government, that is good -- because a stronger NDP potentially takes votes away from the Liberals, which in turn helps the Conservatives win seats in close, three-way races in the next election.
Should the Conservative government choose to go to the polls -- perhaps as early as this spring -- then it also doesn't hurt to position itself as a champion of the hard-working, taxpaying Canadian.
"He doesn't want to be seen in this environment with being too chummy with the banks," said an Ottawa insider who has ties to the financial services industry.
This is particularly the case given the $52-million in compensation that the big bank CEOs pocketed in 2006.
The banks can't be thrilled with Mr. Flaherty since he took over at Finance. He has ruled out bank mergers, saying they are not a priority, prohibited banks from selling insurance in the branches, and now has applied pressure over ATM fees.
"The ATM study is a pre-election ploy to appeal to the common people," said Lew Johnson, a finance professor at the Queen's School of Business, adding he drives to downtown Kingston, Ont., to go to his bank branch in order to avoid paying withdrawal fees on campus.
"We all use ATMs and we all get frustrated with the fees. People are really upset about the fees," he said.
Mr. Johnson said legislators such as Mr. Flaherty might have something else in mind in their fight against fees.
"If the banks gave up, or reduced, ATM fees, maybe implicitly Ottawa is saying, 'We might look more favourably on you as an industry if you come to us looking for changes in the Bank Act,' " he said.
;
There is more than just old-fashioned bank bashing going on in the current showdown between Ottawa and the country's lenders over ATM fees.
"The government seems intent on making this a political issue and no bank wants to get involved in politics," said a senior banking executive yesterday. "Is this what's good for consumers or is this about politics?"
The current probe by the Finance Minister, Jim Flaherty, or the pending study by MPs on the House of Commons finance committee, is not about making tangible changes to the way banks charge their customers for using automated tellers operated by another lender, observers say.
"There is no valid role for government intervention in ATMs. By and large, it is a case of Canadians who can't be bothered to walk a few hundred yards to another branch," said Laurence Booth, a professor at the University of Toronto's Rotman School of Management, noting there is an ATM network among credit unions that does not charge withdrawal fees.
Instead, there is a bigger game at play in Ottawa. The Conservatives are trying to distance themselves from the banks in the lead-up to a possible election, as well as raise the profile of the NDP; and legislators are issuing an invite to the banks to give up something now in return for favourable legislative changes down the road.
It was NDP leader Jack Layton that pushed ATM fees onto the federal agenda. Mr. Flaherty, at the NDP's behest, said he would look into that, and that has led to him meeting with bank chief executives next week. The get together was prompted after Mr. Flaherty suggested he was given an unsatisfactory response from the industry lobby group, the Canadian Bankers Association, about ATM fees.
By pursuing the issue, the Conservatives are strengthening the hand and relevancy of the NDP. For the Stephen Harper-led government, that is good -- because a stronger NDP potentially takes votes away from the Liberals, which in turn helps the Conservatives win seats in close, three-way races in the next election.
Should the Conservative government choose to go to the polls -- perhaps as early as this spring -- then it also doesn't hurt to position itself as a champion of the hard-working, taxpaying Canadian.
"He doesn't want to be seen in this environment with being too chummy with the banks," said an Ottawa insider who has ties to the financial services industry.
This is particularly the case given the $52-million in compensation that the big bank CEOs pocketed in 2006.
The banks can't be thrilled with Mr. Flaherty since he took over at Finance. He has ruled out bank mergers, saying they are not a priority, prohibited banks from selling insurance in the branches, and now has applied pressure over ATM fees.
"The ATM study is a pre-election ploy to appeal to the common people," said Lew Johnson, a finance professor at the Queen's School of Business, adding he drives to downtown Kingston, Ont., to go to his bank branch in order to avoid paying withdrawal fees on campus.
"We all use ATMs and we all get frustrated with the fees. People are really upset about the fees," he said.
Mr. Johnson said legislators such as Mr. Flaherty might have something else in mind in their fight against fees.
"If the banks gave up, or reduced, ATM fees, maybe implicitly Ottawa is saying, 'We might look more favourably on you as an industry if you come to us looking for changes in the Bank Act,' " he said.
