Are banks doing “Tied Selling”?
This may be my most controversial post yet. The concept of “Tied Selling”, as defined by Investopedia is:
- Tied selling is the illegal practice of a company providing a product or service on the condition that a customer purchases some other product or service.
How close does that sound to “Multi-Product Rebate”? For example, see how RBC promotes it:
- The more you bank with us, the more you save. It’s our way of saying thanks! With the MultiProduct Rebate you could enjoy monthly savings of up to 100% of your monthly fees depending on the type of account you hold and the number of eligible products you have with us.
Just to be clear, I am NOT trying to imply that “tied selling” and “multi-product rebate” are the same. To be fair, the difference I see is that Tied Selling involves “adding” a product or service; while Multi-Product Rebate involves “subtracting” a fee.
I will leave it at that. More importantly, I would love to open this topic up for discussion. How you feel about this practice? Please share in the comment section below!
All of the big banks in Canada have information readily available about this topic, and they all take pains to differentiate providing rebates from illegal “coercive tied selling.” Here’s the paragraph from RBC’s brochure:
“Most businesses, including ours, look for tangible ways to show their interest in your business and appreciation for your loyalty. Sales practices, such as preferential pricing and bundling of products and services, offer potential and existing customers better prices or more favourable terms. These practices should not be confused with coercive tied selling as defined by the Bank Act. Many of these practices will be familiar to you in your dealings with other businesses.”
http://www.rbc.com/Coercive_Tied_Selling_ENG_FINAL.pdf
The government also has a page on their website that states that these types of discounts are not illegal coercive tied selling.
“However, banks (and their affiliates) are allowed to offer consumers, in conjunction with one of their products, another product or service on more favourable terms than they normally would provide. This is similar to a company offering a deal or discount to its customers if they purchase more than one item from the company. For example, if you obtain a loan from a bank to purchase a Registered Retirement Savings Plan (RRSP) investment, the bank might offer you a better rate on your loan if you also purchase your RRSP investment from them.”
https://www.canada.ca/en/financial-consumer-agency/services/rights-responsibilities/rights-tied-selling.html
Thanks for sharing this perspective Morgan!
Anyone who willingly banks at a corporate bank is asking for this kind of multi product push. The smart individual puts their money in a credit union, where rates are better and profits go back into the company — not shareholder and CEO pockets.
Thanks for sharing your thoughts Lance!
This depends on the needs of the individual. Banking at certain institutions can make it worth your while.
I’m not saying to move everything from the top 6 banks, but it pays to diversify into at least one other bank.
For example, I bank at TD, but they offer little services or incentive (ie low low interest). Right now, there is a promotion for HSBC for premier accounts. If you have 100k in assets, move them and get up to $700 in cash. They will provide a rebate for the HSBC world elite mastercard. Yes I know there is a promotion for FYF for it, but moving forward after one year that rebate will kick in. This is also good if you want to segregate new funds from old ones… ie SD rsp from a precious company into a new one.
There you go, tiered selling and multi product rebate all rolled into one.
Thanks for sharing your thoughts Rob!
@Morgan Grainger is on the right track. Transactionally rebates work just like a grocery store coupon – buy x and get money back.
Tied selling is forcing you to buy y just so you can get essential service x. In credit card speak, forcing you to purchase life insurance before you can get overlimit protection, for example. Especially if one service is not dependent on the other service.
Thanks for sharing your thoughts phoenix!
Great topic! As many as of the commenters have noted, the game Canadain Banks are playing is Preferential Pricing.
This is an excellent discussion nonetheless. More thoughtful posts on concepts like this one, please.
Thanks for your feedback Christopher. This was a trial post to see if there was any interest in a discussion on hot topics.
Glad to hear you appreciated it, will look into future similar post ideas!