The ads come as Canadian banking is undergoing a generational shift, including a wave of buyouts of smaller corporations, the emergence of technology-based corporations as a possible threat to the establishment and a federal government that has each made big guarantees and brought steps to create more competition.
While it isn’t clear how all the pieces will play out, changes are clearly afoot in Canadian banking.
“This is dramatically different from what we have seen before,” said Adriana Vega, managing director of Fintechs Canada. Vega welcomed the undeniable fact that the federal government had not only made strong overtures to extend competition within the autumn budget, but in addition soon began an implementation law that contained vital details on the further development of open banking.
Open finance could reshape Canada’s financial landscape
The system, also called consumer-driven banking, has been hailed by many challengers as the most effective approach to shake up the sector. By giving consumers control over their financial data, open banking breaks down the silos between financial corporations. It makes it easy to centrally manage multiple accounts, browse and add newer products, and switch accounts entirely.
Not only has the federal government already moved forward with laws to make this a reality, but it surely has also explicitly stated that promoting competition is a component of its mandate. “It was a big challenge for the industry,” Vega said.
And while Canada is late to the sport on open banking, the federal government is attempting to make up for lost time by including a wide selection of economic products akin to investments and mortgages within the mandate.
The Best Online Banks and Credit Unions in Canada
“This really isn’t open banking; it’s open finance,” said Steve Boms, executive director of the Financial Data and Technology Association. “It’s not just about Canada catching up with the rest of the world, it’s now about Canada actually moving further than many other countries.”
While Boms recalls the primary conversation he had with former finance minister Bill Morneau about open banking in 2016, he senses it could now develop into a reality if the macro policy winds align. “There is such a determined effort to make the Canadian economy more independent and competitive, both globally and within Canada, that it feels like this time is different and there is a real desire to make it happen.”
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The changes are being led by Prime Minister Mark Carney, who was already aware of the advantages of open banking as governor of the Bank of England when the country’s program went live in 2018. “He had a front row seat,” said Andrew Spence, who wrote a book arguing that banks poach customers after they worked within the industry and who now works as a consultant.
The changes also align with OECD findings that open banking and fintech access to the system are the most effective ways to compete effectively, he said. “The budget signaled for the first time a significant political commitment to introducing competition in this sector,” said Spence.
Consolidation shifts the main focus to empowering consumers
However, the brand new opportunities for competition arise as other trends may limit selection. As a part of a wave of consolidation in recent times, RBC bought HSBC Canada, while National Bank acquired Canadian Western Bank and has been within the strategy of taking on Laurentian Bank’s retail portfolio since early December.
But that does not necessarily mean less competition, said Claire Celerier, Canada Research Chair in Budget Finance on the University of Toronto’s Rotman School of Management. “There is no evidence that there is competition in the ideal number of institutions… with just four banks there could be a very competitive market,” she said.
The most significant aspects are how informed consumers are and the way much influence they’ve, Celerier said. “If the fees are completely transparent and people can switch banks very easily, that can be extremely effective.” The government has a minimum of made guarantees on each points.
The government announced within the budget that it will ban investment and registration account switching fees, which currently often cost $150 per person, while vaguely committing to working with banks to make account switching easier.
Federal regulators also tasked the Financial Consumer Agency of Canada with studying the structure, levels and transparency of fees charged by Canadian banks and said they might explore improving the transparency of fees on cross-border transfers.
The guarantees to make changing accounts easier also come about because recent developments could open up recent opportunities.
