It's great having healthy and strong banks in Canada, but what's the payoff for customers?
This question has to be asked following a week in which the Big Six banks announced huge quarterly profits and one of them, Bank of Nova Scotia, bought up the country's most formidable alternative bank, ING Direct.
Five of the big banks parlayed their strong results into dividend increases, which is good news for a wider swath of investors than you might imagine because of the prevalence of bank shares in mutual funds and pension plans. But the banks' big profits also bring takeaways in the form of the higher fees and borrowing costs we've seen in the past few years.
ING Direct could be another takeaway. Scotiabank says it will maintain ING's products and pricing, even while changing the name in 18 months.
But what was once a disruptive, pro-customer force in the Canadian financial services industry now walks on a big bank's leash.
The story behind the ING sales begins with the global financial crisis and more recent European debt mess, both of which have affected ING's Dutch parent, ING Groep NV. To bulk up its financial strength, ING Groep has been selling subsidiaries abroad.
You could write this off as nothing more than a case of a multinational company making a rational business decision to redeploy its assets.
But that would ignore a history of foreign financial companies entering Canada, spending all kinds of money to build a franchise and then moving on in a way that leaves little or no trace of what they built.
An example is the online broker E*Trade Canada, which coincidentally was bought and absorbed by Scotiabank back in 2008 (Scotia's record with this business is middling – some wins and some losses for clients).
And then there's the online broker Charles Schwab Canada, which Scotiabank added to its online brokerage business back in 2002. All these foreign firms had great brands, but none lasted in a Canadian market where the banks breathe up almost all the oxygen.
By the way, the lack of success for bank competitors is also partly the fault of comfort-loving customers who stick with the Big Six out of habit. ING Direct did climb its way to eighth spot among banks with 1.8 million customers and assets of $40-billion, but that evidently wasn't enough to keep it independent.
How have our big banks repaid us for the loyalty that helped produce combined Big Six profits of $8.2-billion in the quarter ended July 31? With fee and rate increases.
In fact, the period since the financial crisis broke in the fall of 2008 has been the busiest I've seen for bank shenanigans in all my years of writing this column.
Interest rates on lines of credit have gone up, discounts on variable-rate mortgages have almost disappeared, bank account service fees have been increased and there are more surprises than ever in the fine print on bank products.
Bank success isn't built entirely on retail lines of business, but we can definitely say that the fees and interest paid by everyday people were a significant part of those big third-quarter profits.
What we get in return is a banking sector that is totally reliable. You know your money is going to be there when you go to make a withdrawal and, in today's world, that's worth something.
In Spain, for example, a loss of confidence in the banking sector prompted a record number of people to pull their money out in July.
It's up to you to decide whether a strong banking system is enough payoff for the contributions you've made to bank profits. If not, then check out the alternatives.
You'll save some money, and you'll help pump a little air into the banks that compete with the Big Six.
The main banking alternative now that ING has been bought by Scotiabank is President's Choice Financial, an online bank that offers no-charge chequing and somewhat decent rates on savings. It's co-owned by the Loblaw grocery chain and Canadian Imperial Bank of Commerce, and it has been around since 1998.
After PC Financial, the competition is fragmented into a lot of small players. Among them are Ally, which hasn't done much in Canada since introducing a high-rate savings account back in 2009, and an online bank operated without much visible enthusiasm by Canadian Tire. Also, there are several online banks operated by Manitoba-based credit unions.
Using these alternatives won't undermine the solidity of the big banks. It'll just make them work harder to generate those monster profits.
You have $1,000 to put away in a savings account. Here are the best rates as tracked by RateSupermarket.ca and Cannex.com.
Canadian Tire Bank
* run by credit unions
See what ING customers are saying about the Scotiabank deal on my Facebook personal finance page: facebook.com/robcarrickfinance.