Generational change brings competition to Canadian banks – MoneySense

The ads come as Canada’s banking industry is experiencing generational changes, including a wave of smaller players being bought out, the rise of tech-based players as potential threats to the establishment, and a federal government that has both made big promises and taken steps to create more competition.

While it’s not clear how this will all play out, changes are clearly afoot in Canadian banking.

“This is dramatically different from what we’ve seen before,” said Adriana Vega, executive director of Fintechs Canada. Vega welcomed the fact that the government had not only made strong overtures to strengthen competition in the autumn budget, but also shortly afterwards began introducing an implementation bill that included important details on promoting open banking.

Open finance could reshape Canada’s financial landscape

The system, also called consumer-driven banking, is being hailed by many on the challenger side as the best way to shake up the sector. By giving consumers control over their financial data, open banking breaks down the silos between financial companies. It makes it easier to centrally manage multiple accounts, browse and add products from newer players, and switch accounts entirely.

Not only has the government already moved forward with legislation to make this happen, it has also explicitly said that promoting competition was part of the mandate. “That was a big ask for the industry,” Vega said.

And while Canada is late to the table when it comes to open banking, the government is trying to make up for lost time by including a wide range of financial products, such as investments and mortgages, in the mandate.

“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 going even further than many other countries.”

While Boms recalls first speaking to former Finance Minister Bill Morneau about open banking in 2016, he feels this could now become a reality if the macropolitical winds shift. “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.”

The changes are being led by Prime Minister Mark Carney, who is said to have been well aware of the benefits of open banking since he was governor of the Bank of England when the country’s program went live in 2018. “He had a front row seat,” says Andrew Spence, who wrote a book arguing that banks are poaching customers after they have worked in the industry and who now works as a consultant.

The changes are also consistent with evidence from the OECD that open banking and fintech access to the system have been the best routes to effective competition, he said. “The Budget showed for the first time a significant political commitment to introducing competition into the sector,” Spence said.

Consolidation shifts the focus to consumer empowerment

However, the new competitive opportunities come at a time when other trends threaten to limit choices. A wave of consolidation in recent years has seen RBC buy HSBC Canada, while National Bank acquired Canadian Western Bank and has been in the process of acquiring Laurentian Bank’s retail portfolio since early December.

However, it doesn’t necessarily mean less competition, says Claire Celerier, Canada Research Chair in Household Finance at the University of Toronto’s Rotman School of Management. “There is no evidence of an ideal number of institutions to have competition… you could have a very competitive market with just four banks,” she said.

The biggest factors are how informed consumers are and how empowered they are, Celerier says. “If fees are completely transparent and people can switch banks very easily, that can be extremely powerful.” In any case, the government has made promises about both.

The government said in the budget it will ban investment and registered account switching fees, which currently often cost $150 each, while more vaguely committing to working with banks to make account switching easier.

The FBI also ordered the Financial Consumer Agency of Canada to investigate the structure, level and transparency of fees charged by Canadian banks, and said it would investigate how to improve the transparency of cross-border transaction fees.

The promises to make switching accounts easier also come as recent developments could bring new choices.