Differences in Fee Structures Help Drive Canadian Online Banking Acceptance

If Canadian consumers have learned anything about selecting a bank, it's that it pays to shop around and, in some cases, go electronic.

Although financial service charges remained stable overall in 2000, some major fee changes took place at individual banks, trust companies, creditunions and caisses populaires, according to Industry Canada's Office of Consumer Affairs' third annual survey on bank service charges. Royal Bank, for example, lowered fees for almost all types of customer, while Scotiabank raised the threshold on the minimum monthly account balance needed to avoid fees from $1,000 to $2,000, following what the report called an increasingly common trend among the country's five largest banks.

The 15-institution survey, which included Royal Bank, Metro Credit, VanCity, HSBC, Toronto Dominion Bank and Desjardins, also showed some movement toward raising fees for the minimal transaction consumer and for the prosperous branch consumer, neither of whom tends to bank electronically. Desjardins and HSBC, however, lowered fees significantly for those who keep a balance of $1,000.

But convenience consumers, especially those with a balance below $1,000, found the best bargains at virtual banks, according to the report. Electronic banking customers, whether they use the online services of brick and mortars or turn their finances over to an Internet pure play, save the most in financial service charges. Two such Internet institutions-Citizens Bank, run by Vancouver City Savings Credit Union, and President's Choice Financial-ranked the lowest and second-lowest in costs for the convenience banker who makes heavy use of ATMs, as well as for the online banker. For those who maintain balances below $1,000, President's Choice offers the cheapest account. Online customers at Citizens Bank keeping more than $1,000 in their accounts incur no fees at all; at PC Financial, fees cap at $2.50, whether the balance stays above or below $1,000.

So far, young Canadians seem to be taking the most advantage of these savings. According to the Canadian Bankers Association, 83% of Canadians 18 to 24 years old say they conduct most of their transactions online.

Convenience banking customers-the group that traditionally pays the highest service costs whether they keep a high or low balance- are also turning toward the Net, since they stand to benefit the most from the lower fees available at the virtual banks. For example, those with balances below $1,000 at Citizens Bank pay $8 a month, and $10 a month at PC Financial, compared with $20 a month at brick-and-mortar National Bank.

In addition to offering lower-priced accounts, PC Financial and Citizens Bank have extended their offerings to include personal loans, mortgages and retirement savings plans, and have also moved into niche areas. PC Financial, a joint venture of the Loblaw Companies grocery store chain and the Canadian Imperial Bank of Commerce, provides PC Points that customers can exchange for groceries, and Citizens Bank publishes an ethical policy used to inform investment decisions.

Canadians seem to have gotten the comparative-shopping message. The government report found that one-third of Canadian consumers changed banks in the last five years. Almost 40% cited poor service as the reason for switching, while 30% cited convenience. Less than 20% said lower service charges motivated them to take their banking elsewhere.