State of Challenger Banking in Canada

FGS | Surinderjit Kaur Bhatti | Nov 25, 2021

Challenger Banks are the players that offer digital-only alternatives to traditional financial institutions’ banking products and services. As per FGS database, there are 40 such players in Canada, and we categorize them into the following 4 categories based on the status of their banking license. Top players under each category include:

• Beta (using parent FI’s banking licence) - EQ Bank, Simplli, Tangerine, Brightside by ATB
• New (secured a new banking licence) - PC Financial, Motusbank, Canadian Tire Bank, Rogers Bank
• Neo (don’t have their own banking licence but have a partner who does) - Neo Financial, Koho, STACK, Mogo
• Non (don’t have a traditional banking license but meet the conditions to offer financial products in non-traditional ways, like getting a e-money license) - Brim

Over the years, these players have seen tremendous growth in their adoption through launch of innovative value propositions for Canadian consumers. Following are some of the recent trends seen in space:

SME Challenger Banks finally enter the picture

While challenger bank for small and medium businesses was a white space for a very long time in Canada, this year we have seen four players enter the space - Carry, Float, Benji, Jeeves. While most of these solutions are in beta stage right now, they have amazing value propositions for Canadian SMEs like no fee, no personal guarantee corporate cards,  unlimited one-time use virtual cards,  one-click accounting sync and spend management.

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While these are the solutions for small businesses, Moves is a player that has recently launched Moves Spending Account, a banking solution for gig workers. Uber, Lyft and DoorDash  have also partnered with Payfare to offer instant payments to their gig workers through a prepaid card. Apart from these, there are expected launches of SME banking solutions in Canada from Shopify (Shopify Balance) and Quickbooks (Quickbooks Cash), which are live south  of the border.

Kids/Teen banking gaining traction in Canada

In the past couple of years, we have seen a new niche of challenger banks  appear on the Canadian landscape - Challenger Bank for Kids/Teens. Treasure, Walo and Wingocard are some of the players in this space. RBC Ventures has also launched a kid banking app called Mydoh. These solutions not only enable parents to digitally give money to their children, they also help them to track children's spending, set tasks  that need to be completed for earning allowance, and help kids learn about  savings. While most of these apps  are meant for kids and teens for earning allowance from their parents, we have seen a new player, SideKick, which is meant for international students in Canada. SideKick helps international students to receive money from their family in different currencies and enables spending in Canada through a prepaid card.

Challenger Banks are enabling  innovation in the rewards and PFM space

Challengers are innovating the rewards space which is no longer limited to the traditional loyalty programs. The new players are offering a range of reward options from cashbacks that are immediately accessible for spending to personalized discounts at a curated list of retailers. Mogo has given the rewards a completely different twist by offering a cashback in bitcoins. For every purchase through a Mogo account, you earn 1-2% bitcoin cashback which is accessible through Mogo’s bitcoin account (Mogo also has a bitcoin investing product). STACK has created a community called World Stream where STACK users can share their purchases and STACKHacks to earn best rewards and save money.

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PC Financial, on the other hand, is staying strong  on its loyalty program game through its PC Optimum points program. The program has more than 18 million members and is in fact the layer behind most of the Loblaw offerings - PC Money, Credit Cards, PC Health and beyond.

Additionally, challenger banks  are enabling Canadians to better manage their finances by offering tools like automated savings, spending limits, sub-accounts for saving goals, transaction round-up savings and spending insights. Some of the players also offer credit score monitoring and building solutions. These use-cases will further grow with the advent of Open Banking in Canada as users would then be able to link all their accounts to a single app and get a full view of their financial standing which will enable informed financial decisions.

Prepaid is enabling  non-banks to enter challenger banking space

Non-banks are entering the financial space through the launch of ‘bank like’ solutions which are mainly enabled by a prepaid card. The categories of these non-bank players launching challenger banking solutions for their customers range from tech giants to e-commerce players to major retailers.

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Prepaid enables these players to quickly enter the financial industry and start capturing the banking relationship of their customers with minimal regulatory requirements and skipping the need for getting a bank license. The non-bank players are thus able to not just offer an end-to-end experience to their customers but also capture their spending data  which helps them to learn more about  the consumer and further innovate to offer predictive services.

Authored by:

Surinderjit Kaur Bhatti, Co-CEO at FGS, is a FinTech expert with experience ranging from the venture capital world to leading an innovation lab of a financial institution to innovation consulting. At present, she is a leader at FinTech Growth Syndicate and helping Canadian Financial Institutions build their FinTech strategies through market intelligence services.

This article is featured in NCFA's digital magazine, Fintech Confidential (Issue 4 Oct 2021). Click to read the latest thought leadership, insights and trends about Fintech in Canada:

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