The ads come as Canada’s banking industry undergoes a generational shift, including a wave of smaller bank takeovers, the emergence of tech-enabled banks that pose a potential threat to the establishment, and major federal commitments and moves to create more competition.
While it’s unclear how this will all play out, changes are clearly afoot in Canada’s banking industry.
“This is very different than what we’ve seen before,” said Adriana Vega, executive director of FinTech Canada. Vega welcomed the fact that the government not only set out strong proposals for greater competition in the Autumn Budget, but also soon began work on an implementing bill that includes key details to drive open banking forward.
Open finance can reshape Canada’s financial landscape
The system, also known as consumer-driven banking, is hailed by many on the challenger side as the best way to shake up the industry. Open banking breaks down barriers between financial companies by giving consumers control over their financial data. It makes it easier to manage multiple accounts centrally, shop around and add products for new players, and switch accounts entirely.
Not only has the government advanced legislation to make it a reality, it has also made it clear that promoting competition is part of its mandate. “This is a big ask for industry,” Vega said.
Although Canada was late to open banking, the government is looking to make up for lost time by including a wide range of financial products such as investments and mortgages in the mandate.
Canada’s Best Online Banks and Credit Unions
“This is not actually open banking; this is open finance,” said Steve Boms, executive director of the Financial Data and Technology Association. “It’s not just a matter of Canada catching up with the rest of the world, it’s a matter of Canada actually being further ahead than many other countries.”
While Bohms remembers first talking about open banking with former finance minister Bill Morneau in 2016, he believes open banking may now become a reality as macro political winds shift. “There’s been such a determined effort to make the Canadian economy more independent and competitive globally and within Canada, and it feels like this time is different and there’s a real desire to make that happen.”
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The changes have been led by Prime Minister Mark Carney, who was already clear about the benefits of open banking as early as 2018 when the Bank of England’s plan was launched. “He had a front-row seat,” said Andrew Spence, who wrote a book about banks fleecing customers after a career in the industry and now works as a consultant.
He said the changes were also consistent with evidence from the OECD that opening up banking and fintech into the system was the best way to achieve effective competition. “The budget shows for the first time a significant political commitment to introducing competition in the sector,” Spencer said.
Consolidation shifts focus to consumer empowerment
However, the emergence of new avenues of competition comes at a time when other trends also risk reducing choice. In a wave of consolidation in recent years, RBC acquired HSBC Canada, while National Bank acquired Canadian Western Bank and, as of early December, was acquiring Laurentian Bank’s retail portfolio.
But that doesn’t necessarily mean less competition, said Claire Selaire, Canada Research Chair in Household Finance at the University of Toronto’s Rotman School of Management. “There is no evidence that there is an ideal number of institutions competing… even with just four banks the market is likely to be very competitive,” she said.
The most important factor, Seleril said, is how informed consumers are and how empowered they are. “If fees were fully transparent and people could switch banks easily, it would be very powerful.” The government has committed to at least two of these.
The government said in the budget that it would ban fees for switching investments and registering accounts, which currently typically cost $150 each, while vaguely promising to work with banks to make it easier to switch accounts.
The Fed also tasked the Financial Consumer Agency of Canada to investigate the structure, level and transparency of Canadian bank fees and said it would explore increasing transparency around cross-border transfer fees.
The promise of making switching accounts easier comes as recent developments could bring new options.
