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If you’ve ever used online banking to send money as a gift, pay a friend back for dinner or send rent to your landlord, there’s a good chance you used Interac e-Transfer to do it. The service allows people to request, send and receive money directly through Canadian personal and business bank accounts. Interac Corp. says 88 per cent of Canadians have used e-Transfer, and the company processed nearly 1.2 billion transactions in 2023.

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But now, the government is questioning whether Interac’s e-Transfer service is anti-competitive — and politicians have asked the Competition Bureau to step in and investigate. Here’s what you need to know about the most ubiquitous payments exchange provider in Canada, and how it came to be in the crosshairs of government watchdogs.

Why is the government scrutinizing Interac e-Transfers?

First, a little on Interac: it was formed in 1984 as a non-profit co-operative between five founding financial institutions: Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, and Desjardins Group. Interac was incorporated in 2013, and has since been run as a for-profit, privately held company.

At the heart of the issue is whether Interac’s governance and fee structure unfairly benefits Canada’s large financial institutions and disadvantages smaller players and potential competitors. Interac charges e-Transfer fees to financial institutions, who in turn may charge customers fees to send them — usually between $1 and $1.50, depending on their banking plan.

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How does Interac charge for e-Transfers?

Conservative MP Michelle Rempel Garner has called Interac’s fee schedule a “closely guarded secret,” but was able to confirm at an Oct. 28 meeting of the House of Commons Standing Committee on Industry and Technology that Interac uses a tiered volume-based pricing model, where larger financial institutions with a higher volume of e-Transfers receive a discounted rate, while smaller institutions with lower volumes pay more per transaction. She also said she had received information indicating that Interac charges financial institutions between six and 43 cents per transaction.

During his questioning of RBC executive Ramesh Siromani, who sits on Interac’s board of directors, Conservative MP Adam Chambers noted that Interac’s 13-member board includes seven representatives from Canada’s major banks and credit unions. “I guess what I’m pointing out is the inherent conflict of interest that exists by having the customers of Interac sit on the board to set the pricing that disadvantages smaller entities,” Chambers said.

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After the Oct. 28 committee meeting, Rempel Garner and Chambers wrote a letter to the Competition Bureau asking it to investigate whether Interac’s governance and fee structure constitutes an “abuse of dominance” under the Competition Act.

“The e-Transfer business is rapidly growing in Canada, underpinning many business and personal transactions. A non-competitive environment in this space could impact the Canadian economy far beyond Canadians who use the service now. The government has an objective to modernize the payments system in Canada to lower transaction fees for Canadian consumers and businesses,” they wrote.

Is Interac being investigated by the Competition Bureau?

Yes. On Nov. 25, Commissioner of Competition Matthew Boswell confirmed to the committee that the Competition Bureau has “launched a preliminary investigation into Interac’s conduct with respect to e-Transfers.”

Boswell said it isn’t the Bureau’s mandate to set rules for companies, but to “ensure that a player is not in a position to both dictate the rules of the game and benefit from them unfairly.”

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The Bureau is required by law to keep details of its investigations private, but a spokesperson told the Financial Post via e-mail that it “must conduct a thorough and complete examination of the facts regarding any issue before reaching a conclusion as to whether the Competition Act has been contravened.” They said the Bureau couldn’t speculate on how long the investigation will take, but said it will aim to work “as quickly as possible.”

“During the typical examination stage, Bureau investigators identify all available sources of information about the relevant marketplace activity, determine whether any issues are raised under the Competition Act and assess whether further investigation is appropriate,” they said.

How is Interac responding?

On Dec. 9, two weeks after the Competition Bureau announced its investigation, Interac chief executive Jeremy Wilmot appeared before the committee. Wilmot confirmed that Interac currently uses tiered volume-based pricing, but said the company had already been working for more than a year to review and update its fee model. He said starting sometime in 2025, all financial institutions will pay a single flat-rate fee for e-Transfer transactions.

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Wilmot said Interac will “fully co-operate” with the Competition Bureau’s preliminary investigation, but wouldn’t provide specifics to the committee about the company’s profits and shareholder structure, nor confirm whether banks are the majority shareholders, citing the fact that Interac is a privately held company.

“The lack of transparency leaves open a lot of questions for people,” Chambers said to Wilmot. “They question whose interests are being well served: Is it Interac’s or is it the secret ownership structure that we don’t know about?”

What options are being explored by the committee?

It’s hard to say at this point, since the Competition Bureau’s investigation is still in its early stages, but Liberal MP Tony Van Bynen did bring it up while questioning Wilmot: “One quick solution would be to require divestiture by the major players so that it’s an independent corporation,” Van Bynen said.

While Wilmot said Interac e-Transfers account for six per cent of electronic payments in Canada, Liberal MP Joël Lightbound questioned how many alternatives there are for Canadians to directly transfer money to others.

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“All that I’m hearing makes me all the more hopeful that, at some point, we’re going to get new technologies like blockchain that will allow for a peer-to-peer, permissionless way to move value and money around,” he said. “I think it’s coming, because the traditional legacy financial system has failed Canadians in many ways.”

In their letter to the Competition Bureau, Rempel Garner and Chambers said because Canada’s big banks “effectively own Interac and profit off the facilitation fees they charge,” they likely aren’t keen on welcoming potential competitors into the online transfer space. But for the millions of Canadians who send money via e-Transfers, “a competitive environment with multiple players” could lead to lower fees for individuals and businesses.

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