Every week (or so), two Torontoist staffers square off to debate an issue that’s important to our city. We invite our readers to join the debate in the comments section following the post.
Federal Finance Minister Jim Flaherty met with the big banks last week in an effort to get them to lower or eliminate the fees Canadians pay for banking at ATMs. The response was chilly. Scotiabank and National Bank have already dug in their heels and they say they’re not moving on fees. So, should the government force a reduction in ATM fees, or are the banks just charging a fair price for a convenient service? Read on as Torontoist tackles this issue. You will not be charged for following this link.
The writing is on the wall for ATM fees. At this point, we are just waiting for the big banks to wake up and figure out that getting rid of these fees voluntarily is in their own best interests. If they wait until the government legislates the fees away as part of pre-election maneuvering, the banks will be missing out on a huge opportunity. And I’m not talking about the half-measures currently being considered regarding the elimination of fees for seniors and students, the fees should disappear for everyone.
ATM fees are not a major source of bank revenue . According to estimates from the NDP, Canada’s Big 6 banks collected about $420 million in ATM fees last year. Now, that might sound like a lot of money to you or me, but it’s peanuts to banks that made a record $19 billion profit in 2006.
It’s frankly amazing that banks charge ATM fees at all when you consider the huge savings that electronic banking represents to them. These days, Canadians conduct 85% of their transactions electronically. This has allowed the banks to close branches and reduce staff on a massive scale. The fact that they also charge us for banking this way is nothing short of bold. It would be like a grocery store charging you for bagging your own groceries, or the city charging you for shovelling your own sidewalk. On top of that, when you consider how much Canadians resent being charged to access their own money, and what a small portion of the banks’ revenue the fees represent, ATM charges go from being bold to just plain stupid.
TD has already seen the light in getting rid of ATM fees. The US-subsidiary of the green giant has totally eliminated ATM fees. They even go so far as to refund any charges another bank might impose. No minimum balance required. No limit on the number of transactions. No doubt that this will be coming to Canada soon. It’s not even a revolutionary idea. Basic banking at ATMs is already free in the UK, Ireland, Finland and the Netherlands.
But it’s not just because the banks can afford to get rid of fees that they should do it. They should drop the fees as a way of building customer loyalty and to distinguish themselves from all the no-name or ‘white label’ bank machine companies out there.
Anyone who used to bank with the old Canada Trust, probably remembers their hideous orange JohnnyCash machines. When TD purchased Canada Trust, it didn’t take long for JohnnyCash to disappear. An ATM network with a name reminiscent of portable toilets doesn’t exactly inspire confidence. It’s probably not the place you want to put your RRSPs. Today, the fact that the big banks treat us the same as white-label companies with names like Laser Cash or Cash N Go has got to be a little embarrassing for them.
Our major banks are venerable institutions and the backbone of the Canadian economy. It’s time for them to start behaving like it and stop treating us the same way as the companies who take advantage of us when we stumble out a bar at 2 am and realize we don’t enough cash on us for street meat.
The big banks serve a number of vital purposes in Canada, not the least of which is to serve as political whipping boy when politicians want to suck up to the voters and deflect public outrage from the scandal du jour. With a possible election looming, all three major parties have jumped on the “regulate ATM fees” bandwagon. Each has their own reasons – the NDP because shrill, irrational populism is their stock in trade, the Liberals because they’re trying to make everyone forget that they elected Stephane Dion as leader, and the Conservatives, because, well, everyone else was doing it (perhaps with a discreet wink to the bankers implying that if they take the hit on this, bank mergers might be viewed more favourably under a future Tory majority.)
Of course, the idea that there is some massive inequity in the way that ATM fees are charged is utter nonsense.
Firstly, Canada has far more machines per capita than most countries, including the US. That means Canadians have greater choice in which machines they use, including those of their own bank, which normally don’t charge a fee to customers. Given the number of ATMs in the country, avoiding a fee for most Canadians rarely means more than walking a block or two.
Secondly, the notion that Canadian fees are out of line with those charged elsewhere is simply false. A 2006 study from theBritish Bankers Association found that our fees for withdrawals from banks where the withdrawer was not a customer were below those of Germany and Italy, about the same as the US, and slightly higher than Australia. For withdrawals from ATMs outside Canada, Canadian fees were the third lowest of 10 countries surveyed (far lower than the UK).
There’s also a direct correlation between the physical size of an ATM network and the cost to maintain it. The idea that Canadian fees should reflect those in Ireland or the UK is equivalent to demanding that train travel from Vancouver to Toronto be priced the same as between London and Liverpool.
An argument also has been made, notably by NDP Finance Critic Judy Wasylycia-Leis, that the banks make a lot of money and can afford not to charge for ATM use, the insinuation being that welfare moms’ transaction fees are being funneled directly into solid gold bidets for bankers’ private jets and the like. In fact, banks, like all businesses, are entitled to be profitable and it’s lucky for Canadians that they are, since the Big 5 collectively employ over 237,000 people and pay $4.39 billion a year in taxes. Moreover, because Canadian law prohibits single shareholders from owning more than 10% of the outstanding shares of any bank stock, the shares are widely held, and millions of Canadians benefit from bank profits either directly through shareholding or indirectly through pension funds.
For further proof that the whole hullabaloo is simple politics, consider the “white label” ATMs not owned by the banks. The owners of these machines can charge whatever the market will bear (some have fees of up to $20 per withdrawal) and yet no one is talking about regulating these companies.
If some form of ATM fee regulation is legislated, the outcome will be predictable. The banks will make up the lost revenue either through new charges, or they will reduce the size of their ATM networks, or both. In any case, the ultimate loser will be the consumer.