Prepared by Canadian Bankers Association June 13, 2016

The Canadian Bankers Association (CBA) welcomes the opportunity to participate in the independent review of Canada Post launched to consider viable options for postal service in Canada. 

Our interest in the review relates to proposals that Canada Post engage in the business of postal banking as a means of generating additional revenue. The CBA is concerned that these proposals are not guided by a clear public policy need, with some proponents disregarding the facts about Canada’s existing highlycompetitive and accessible financial services sector. As the Task Force works to identify viable options for Canada Post, we put forward the following information for consideration when assessing proposals for postal banking.

Competition in Financial Services

An argument that is often made in support of postal banking is the claim that there needs to be more competition in financial services in Canada. In fact, Canada has a highly competitive financial services sector.

There are currently 80 banks operating in Canada, with more than 40 banks offering financial products and services to Canadian consumers through a variety of means including branches, automated banking machines, online, mobile phone apps, and telephone to reflect the needs of banks’ diverse customer base. There are also non-bank providers of financial services that actively compete with the banking industry, including over 1,000 credit unions and caisses populaires.

With so many financial service providers available to consumers, Canadians can shop around in order to choose the options which are best suited to their needs. The CBA has done extensive polling on the issue of competition in the financial services sector. The results demonstrate that Canadians believe there is enough choice in banking, with many actively taking advantage of the choice available. Nearly 60% of Canadians have switched accounts to reduce their service fees, and 32% of Canadians have switched banks entirely in order to save money. Additionally, 65% of Canadians deal with more than one financial institution and, of those, 34% deal with three or more.

The benefit for Canadians of the tremendous amount of choice in financial services is reflected in the Capgemini/Efma World Retail Banking Report which has ranked Canada number one in their annual Customer Experience Index every year since 2012. This ranking is based on a comprehensive survey of 16,000 retail banking customers in 32 countries.

With so many bank and non-bank providers of financial products and services actively competing across the country, there is no basis for claims that consumers are under served by Canada’s competitive financial marketplace.

Access to Banking

Some proponents of postal banking have asserted that banking services are inaccessible in Canada. Contrary to these claims, banking is more accessible than ever. In fact, according to the World Bank1, 99% of adult Canadians have an account with a financial institution.

In-branch banking

Branches remain an integral part of banking in Canada. While only 13% of Canadians visit branches for their daily banking, banks have maintained their extensive branch network for those clients who choose to access the financial services and advice they need in-person when making important life decisions such as purchasing a home, making investments, or planning for retirement. In fact, the number of branches in Canada has increased from 6,151 in 2010 to 6,348 in 2014. Additionally, many of these branches have extended hours and are open on weekends to better meet customer needs. Banks continue to open new branches because they facilitate the development of strong client relationships and this investment demonstrates the continued commitment to service local communities.

Electronic banking

In addition to the extensive network of bank branches in communities across the country, most banks also offer mobile and online banking so that Canadians can access their banking from virtually anywhere, 24 hours a day, seven days a week. Every year, more Canadians embrace these new technologies with online banking quickly becoming the preferred method for 55% of Canadians, up from 16% in 2002. In Canada in 2015, over 614 million internet banking transactions and 202 million mobile banking transactions took place.

Payday lenders

Although the number of branches has increased in Canada, some proponents of postal banking argue that a lack of branches has precipitated the growth of payday lenders in Canada. It is important to remember that in order to access a payday loan, an individual is required to have an account at a financial institution such as a bank or credit union. Further, research examining payday lending locations have found that more than 80% are located within one kilometre of a financial institution. While those who use payday lenders do so for a variety of reasons, banks believe that, for those who use payday lenders to make ends meet, providing additional credit to someone who has already exhausted other credit options is not helpful to that person. Banks would rather help with tools and advice such as loan consolidation, money management advice or referral to a not-for-profit credit counseling agency. Ultimately, the vast majority of Canadians do not use payday lenders. Statistics Canada surveys have shown that close to 95% of Canadian households have not used a payday lender2.

Affordability

Banking is as accessible as ever with an extensive branch network located across the country and online emerging as the preferred means of banking for the majority of Canadians of all age groups. Banking has evolved and customers value innovation and convenience as they access their banking outside of traditional business hours. The banking industry is a strong supporter of ensuring Canadians have access to basic banking services and already offer a range of low-cost banking services to millions of Canadians. To argue that postal banking is needed so that Canadians can have access to banking services does not reflect the reality and continuing innovations in banking across the country.

Affordability is not a barrier to banking. Banks offer a range of low-cost and no-cost account packages, including some at no cost to youth, students, seniors, and Registered Disability Savings Plan beneficiaries. All banks offer select bank accounts for only $4 per month. Thirty per cent of Canadians pay no service fees at all, and nearly half only pay between $1 and $15 per month. Furthermore, an individual’s income level has no influence on whether a bank will open an account. Banks will open an account if the individual is not employed and if they do not have an initial deposit.

Effective Risk Management and Supervisory Oversight

A healthy financial sector is a key component of a well-functioning economy. Canada’s banking system is widely recognized as being one of the strongest and soundest in the world. Canada’s banks have been ranked as the soundest in the world for eight consecutive years by the World Economic Forum. This strength was clearly demonstrated throughout the global financial crisis as the Canadian banking sector continued to perform and did not require government-funded bailouts, which stands in sharp contrast to the challenges faced by other countries.

The global financial crisis and resulting economic downturn taught us a few critical lessons:

  • The importance of well-capitalized financial institutions to the stability of the financial system and the national economy;
  • The need for a robust supervisory system based on comprehensive prudential standards;
  • Ensuring that taxpayers are not exposed to weaknesses within financial institutions; and,
  • Problems in one financial institution can quickly spread to other parts of the financial system and the wider economy.

In response to the crisis, governments and regulators around the world proceeded with a substantial reform agenda, which included new rules and policies to strengthen the global financial sector. While these rules are set internationally, it is up to domestic regulators to put them in place and enforce them. Canada’s prudent banks, combined with effective regulation and supervision, form a model of stability in the global financial system. Canada’s banks are now subject to heightened regulatory requirements in the areas of capital, liquidity, anti-money laundering and anti-terrorist financing, as well as recovery and resolution planning. The CBA has supported many of these changes as they help to ensure the continued stability of the Canadian financial system.

Given the strength of Canada’s financial system, and its critical importance to the health and stability of the broader national economy, proposals for Canada Post to become involved in retail financial services should not be taken lightly. It is critically important for all financial service providers to have the appropriate expertise, processes, systems, and robust risk management practices in place to protect Canada’s financial system. Because Canada Post is a crown corporation, taxpayers ultimately bear the risk of its operations.

Conclusion

Canadians benefit from more choice, convenience, and access to banking services than ever before. We believe that there is no public policy objective or existing gap in the marketplace that would necessitate the Government of Canada entering into the business of retail banking through Canada Post. Canadians are well served by Canada’s competitive, prudently regulated and effectively managed banking system.

We understand that at this stage of the review process the Task Force is collecting information in order to prepare a discussion paper on the future of Canada Post. We look forward to working with the Task Force as well as participating in the review process as it unfolds.


1 World Bank, Global Findex Database 2014: http://ow.ly/SfkaL
2 Statistics Canada, Survey of Financial Security (2012) and Financial Capability Survey (2009 and 2014)