Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Incumbents, consumer complacency barriers to innovation in Canadian banking
Betakit | | Sep 27, 2019
Wednesday at the #ElevateTechFest Money Stage, BetaKit’s Meagan Simpson spoke with three FinTech disruptors about open banking and the barriers faced by innovators looking to shake up Canada’s financial system.
“I think we need to own the fact that we frankly didn’t get our shit together soon enough.”
The panel featured Daniel Eberhard, founder and CEO of Koho, a Toronto-based challenger bank, Alexandra Nuth, managing director of ATB’s new digital offering Brightside, and Saud Aziz, strategy and operations manager of Canada for Revolut, a UK-based challenger that is currently expanding to the Canadian market.
See:
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Open Banking: What’s Really at Stake
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Open banking has a big branding problem, government’s public opinion research suggests
Revolut is one of a number of UK-founded challenger banks, including Starling and Monzo, that have popped up in recent years to offer an alternative to traditional banking. The UK, in fact, is known as having a competitive environment for challenger banks to thrive. The UK has adopted open banking much more quickly than other nations; In 2016, the United Kingdom Competition and Markets Authority required the nine largest UK banks to allow licensed startups direct access to their data.
Eberhard said the regulatory environment across the pond in Canada has made it much more difficult to thrive as a challenger bank, as regulators have prioritized managing system risk over creating a competitive environment.
Open banking is meant to give consumers more control by allowing their banks to distribute their personal data to third parties through the use of open application programming interfaces (APIs). One of the goals of open banking is to foster a more competitive and innovative financial ecosystem and proponents of open banking claim it allows financial companies to improve their offerings and customer engagement, and create new channels for digital revenue.
One of the specific advantages to UK challenger banks over their Canadian counterparts is the ability to receive an electronic money institution licence (EMI), which allows PayTech and FinTech companies to offer specific and common financial operations, including money remittance services, process payment transactions, and direct debit or credit transfers.
No such licence exists in Canada, and this inability to operate means companies like Koho need to rely on partnerships with incumbent institutions to move their customers’ money. Aziz said regulators need to understand that Canada shouldn’t have a binary framework between existing as only either a bank or not a bank.
See:
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What does the future of banking look like, according to the experts?
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NCFA Letter to Ontario Economic Development on Burden (Jan 2019)
Outside of Canadian regulations that also make it extremely difficult for startups like Koho and Revolut to get banking licences, challenger FinTech’s like Koho have faced direct roadblocks from incumbent financial institutions. Eberhard referenced a tweet that he shared over the summer, regarding a Koho employee being blocked by CIBC from transferring funds to their Koho account, with the bank flagging that Koho could be associated with “scams.”
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