MONTREAL — Peoples Trust isn’t exactly a household name among Canadian consumers. The privately owned bank, whose parent is an international conglomerate with holdings in real estate and entertainment, doesn’t have a single retail branch. But it issues the payment cards of four of Canada’s best-known Canadian fintechs: Koho, Wealthsimple, Mogo and Stack.

“The Peoples brand is well known throughout the fintech community as the stealthy enablers behind the scenes,” said Peoples Group vice-president Karen Budahazy, “providing our clients with all the necessary tools to enable the financial services they want to provide.”

As Canada’s fintechs expand their reach and influence, smaller banks like Peoples have been eager to work with them. Though many fintechs are trying to challenge the Big Six, they still need to rely on banking partners for highly regulated areas like card issuance or holding customer deposits. The partnerships offer a compelling business opportunity for the big banks’ smaller rivals while letting fintechs avoid making deals with their biggest competitors.

Besides Peoples, another bank to increase its focus on fintech recently has been Equitable Bank, whose purchase of Saskatoon-based Concentra, announced in February, will make it Canada’s largest after the Big Six. 

The company—which, like other challenger banks, doesn’t have any in-person branches—operates a digital banking platform for consumers called EQ Bank. But it also offers banking services for fintechs, including savings accounts for Wealthsimple, which ensures that the funds are protected by federal deposit insurance. Equitable is also a shareholder in Wealthsimple, Equitable CEO Andrew Moor said.

“It’s really grown into a quite mature program,” Moor said of the bank’s moves in fintech. “We certainly see that as the ecosystem becomes richer or broader, that we’ll be able to partner with more fintechs going forward.” 

Equitable’s purchase of Concentra will add two more important fintech partnerships to its portfolio: Concentra holds customer deposits for the Calgary-based challenger bank Neo Financial, in addition to providing a funding facility for Financeit, a point-of-sale lender for home-improvement projects. Besides its Wealthsimple investment, Equitable already works with Toronto-based Borrowell, in which it owns a stake, as well as Nesto, a Montreal-based mortgage broker.

When it comes to working with smaller banks, “their organizations are more nimble and more open to work with fintechs in the first place,” said Andrew Chau, CEO of Neo Financial, which also banks with Edmonton-based ATB Financial. “The Big Five are generally focused more on their day-to-day core with their large market share, and trying to maintain market share, whereas the smaller banks are focused on, ‘How do they grow their market share?’”

While Canada’s largest banks have made fintech investments of their own—Scotiabank, for example, operates the digital bank Tangerine—Canada’s largest venture-backed fintechs largely work with smaller banks like Equitable and Peoples. Still, the competitive pressure to provide more services to fintechs has started to reach the Big Six, with National Bank, the smallest of the group, investing significantly in building relationships with the sector.

In November 2021, National Bank announced that it would share customer data directly through a new platform called Open Banking Environment, which was developed by Flinks, a Montreal-based financial-data provider that it acquired last year after being one of its largest backers.

The program was the first instance of a major bank sharing data with third parties on a large scale, and served as an early example of what future data-sharing initiatives might look like, according to Dominique Samson, at the time Flinks’s COO. At the time, Samson said the startup hoped to bring other banks onto its platform, creating a larger open banking ecosystem—and potentially putting pressure on other banks to allow their own customers to share data.

“National Bank embracing open banking is a big deal,” said Alex Johnson, director of fintech research at the banking consulting firm Cornerstone Advisors. “Once some market participants get onboard with the idea of letting customers share their banking data, the market can shift in that direction very fast.”

Another way National Bank has been looking to do business with fintechs is through a banking-as-a-service platform called Finaptic that had been under development since 2020. The bank was initially the sole investor in the platform, which offers white-label financial services to other businesses. But it absorbed the company in November 2021 after the bank realized Finaptic would need to raise more money to continue operating on its own, said Julie Levesque, chief information officer at National Bank.

One more area where fintechs will continue to rely on banks’ back-end infrastructure, at least for the time being, is in payments. Most fintechs are currently blocked from accessing Canada’s national payment systems directly. Financial institutions, however, which meet the legal requirements for using those systems, are allowed to process payments on behalf of customers. 

Recognizing that opportunity, Peoples Trust became a participant last July in Canada’s Automated Clearing Settlement System, a payment network for processing retail transactions. The move, which allows the bank to offer cheaper payment services to fintechs and other customers, was made possible by regulatory changes in August 2020 that removed a volume requirement for participants.

“This change opened the payments ecosystem, and allows for more competition in the payments industry in Canada,” Peoples Trust said in a statement at the time.

Correction: Dominique Samson was Flinks’s COO at the time of the November 2021 interview. This story has been updated.