STRATEGIC PARTNERS
Do ATM surcharges and frozen pizza have anything in common? Sure, says CIBC, which recently launched a "white-label" network in Canada.by Kevin Gibson, contributing writer
February 27, 2002
We pay more for soft drinks and bread at the corner convenience store than at the supermarket. Same for aspirin. Ditto frozen pizza.
No one complains, because they know they are paying more for convenience.
In the wake of the news that the Canadian Imperial Bank of Commerce has deployed about 180 non-branded (or "white-label") Automated Bank Machines across Canada -- machines that surcharge not only non-CIBC customers but CIBC customers as well -- some are crying foul.
Since the ABMs aren't branded, CIBC customers may not realize the $1.25 surcharge is going to their own bank.
But a CIBC spokeswoman suggests paying the additional fee is no different than paying the inflated prices for frozen pizza down at the corner store.
"If we don't put that white label in there, somebody else will, so the customer would end up paying the surcharges anyway," said Sharon Gibbs, acting vice president for electronic banking at CIBC.
"With the number of CIBC machines we have in Canada (about 4,000), most people would rather go a little further to use the CIBC, but some people are willing to pay the extra surcharge for the convenience," she added.
Outrage du jour
Hogwash, claims the Democracy Watch, a consumer watchdog organization based in Ottawa. Spokesman Duff Conacher says one look at the Canadian Bank Act shows that what CIBC is doing isn't right. According to Conacher, a bank has to inform its customers in advance whenever there is a change of fees.
"This is a new fee," he said. Even when an ATM customer is warned that he or she will pay the additional $1.25, there is no notice that the money goes to CIBC.
Because it operates its non-branded machines -- called "Ready Cash" -- through a subsidiary called Intria Corp., CIBC says this doesn't fall into the category of normal service fees.
Even if this is technically true, Conacher said, "We think it violates the spirit of the Bank Act. It's just plain sneaky."
Off-color ATMs
CIBC's move likely marks the beginning of increased white-label expansion by Canadian banks.
Royal Bank of Canada has introduced white labels called Cash Works (although it doesn't charge its own customers an extra fee to use them). CIBC intends to add more Ready Cash machines next year, and Montreal based National Bank of Canada has considered making such a move, although nothing is in motion yet.
Nevertheless, the banks' point of view is the same.
"It's not whether there is a white-label ATM or a direct brand" at a given location, said National Bank spokesman Jocelyn Dumas, "it's whether you have an ATM or not. It's whether you have service or you don't have service."
In other words, the banks believe their customers are just happy to have more ATMs available. Since it is too costly to build brick-and-mortar branches or provide branded machines on every corner -- sites with low transaction counts would lose money -- white labels were an obvious answer.
More players, more competition
Ron Carr is president of Swytch, a white-label ATM provider in Oakville, Ontario. He sees nothing wrong with CIBC's approach. "Our market research shows consumers are not adverse at all to paying a surcharge" for the added convenience, he said.
When a 1996 decision by Canada's federal Competition Tribunal opened up the ATM industry to white-label machines, banks realized there would be competition from independent companies such as his, said Carr, who previously worked for the Royal Bank of Canada. Immediately, white-label companies, some of them from the U.S., got into the industry.
"The banks said, 'Gee, if we're going to protect our franchises, we're going to have to do something,'" Carr explained.
White labels like those in CIBC's Ready Cash network are a result. Fred Taphouse, an independent deployer with High Tech Express & Distribution Inc., also finds no fault with CIBC's approach. He agrees that banks need to stay competitive and that deploying white-label machines may be the most equitable way to do so.
Nevertheless, he said, Canada's "Big Six" banks -- CIBC, Toronto Dominion Bank, Bank of Montreal, Royal Bank of Canada, Scotiabank and National Bank of Canada -- realize that some consumers may not approve of the surcharge.
"If there were widespread knowledge that banks are getting into that, I think you'd have some lobby groups go to the government to put a stop to it. I think it would probably be considered a bit of an outrage," Taphouse said. "That's looking at it from the public's point of view. (Banks) don't want to be viewed as (surcharging), although they want the revenue."
Conacher said his group will ask the Canadian government to step in and stop what he calls "double dipping." Canadian Minister of Finance Paul Martin this year announced he supports legislation to further regulate banks' business practices. Conacher believes Martin could use legislation to amend the Bank Act to ban surcharging by banks.
To say the "Big Six" are viewed with skepticism by consumers is to say the grass is, uh, sort of green.
Some feel the Canadian media has created this flap over fees, knowing it makes for good press. Others say consumers simply realize the banks are too powerful.
Gibbs, for one, believes the press has a lot to do with it. "I always say bank-bashing is Canada's favorite pastime. It makes good copy, and from a political point of view, it's always a popular topic with Canadian consumers. There's a huge negativity around the (topic of) surcharge fees."
Taking banks to task
Conacher points out that in the 1998 Task Force on the Future of Canadian Financial Services Sector, conducted by the Canadian Department of Finance, 44 percent of Canadians polled believed the big banks are "heartless."
In addition, the report showed that 58 percent of Canadians feel banks have a greater public responsibility than other businesses, and 59 percent believe large banks exert too much influence and power in Canada.
The Task Force ultimately outlined numerous areas in which the federal government should regulate the big banks' business. Score one for consumers and their mistrust.
According to Conacher, it is the banks' treatment of lower income consumers that causes the biggest problems. The fee levied by CIBC to its customers at Ready Cash machines is another example of that, he said.
"(The banks) have a pretty horrible record for serving people with low incomes -- denying them accounts, denying them access to their fundswhen they deposit a check," Conacher said. "I can tell you people are sick of being nickeled and dimed here in Canada."
Conacher wonders why CIBC customers using non-branded machines must be charged. Since the ATMs are on the same network, it should be easy to identify a CIBC customer and waive the fee. At the very least, he said, CIBC customers should be warned that they are using a CIBC-owned machine.
According to Gibbs, it would be too confusing for consumers. Conacher disagrees.
"It would actually clarify things," he said. "Just before the cash comes out of the machine there's a message that says you will be charged whatever amount and it gives you a choice whether you want to proceed. It could say you will be charged this amount unless you are a CIBC customer withdrawing from your CIBC account. The machines know who you are as soon as you put the card in."
Gibbs admits that while the technology would allow for that, it doesn't change the cost factor.
"We certainly could do that," she said. "But you have to look at it as though you're in a competitive environment ... we're not in a competitive marketplace anymore if we do that. If you're going to take a percentage of people and not charge them -- but if you do charge the other people -- guess what's going to happen? We're not going to get the business. You're not competitive in this marketplace if you're only going to eliminate a portion of people from this fee."
The dispute could get even more interesting.
Taphouse points out that when some of the big banks attempted to merge earlier this year -- Toronto Dominion wanted to merge with CIBC and Bank of Montreal planned a merger with Royal Bank -- "the public outrage was so great that the federal government was forced to refuse to let the banks merge."
The banks, and white-label providers, believed it would decrease ATM operating costs and therefore decrease fees while increasing services -- but the Canadian people didn't see it that way.
It all goes back to the public's perception of the big banks. "They are considered the Big Bad Banks in some instances," Taphouse said. "Because there are only six of them, it is viewed almost as a monopoly."
The task force recommended a Public Interest Review Process to give consumers a chance to study and offer input into any such future mergers.
Chairman Harold MacKay, speaking the day the results of the task force were revealed, said, "The Public Interest Review Process we have recommended will ensure that all Canadians and the Minister of Finance will have a very clear picture of the public interest costs and benefits before decisions are taken on specific mergers."
In addition, MacKay said, "Financial institutions should use the Public Interest Review Process as a framework to constructively and openly work to address public interest concerns. The leaders of our banks, insurance companies and credit unions need to be sensitive to, and act in the best interests of Canada as they press their specific business agenda."
How this may someday affect surcharging, and consequently Canada's white-label industry, remains to be seen.
Meanwhile, Conacher opined, surcharges will keep going up. At the very least, he said, Democracy Watch wants banks to be required to disclose how much it costs to provide certain services. That way the Canadian people know how much the banking industry is making from added fees.
"We feel Canadians have the right to feel they are being gouged until the banks prove otherwise," he said.
