Last October, Carolyn Rogers, Senior Deputy Governor of the Bank of Canada, offered a clear-eyed assessment of the financial sector during an address to The Canadian Club. “It would… be hard to argue, on any objective measure, that Canada’s banking system is anything other than an oligopoly,” Rogers said, pointing to the fact that the country’s six largest banks hold approximately 93 per cent of all banking assets before detailing new (and slightly more risk-tolerant) federal measures meant to boost competition in banking.

Rogers’s remarks came at an apt time: The competitive landscape of the Canadian financial industry is changing, and fast. 

The sector is becoming more heterogeneous every day. “The market is large, it’s growing, and it’s evolving,” says Darren Hannah, Senior Vice-President of Financial Stability and Banking Policy at the Canadian Bankers Association (CBA). In addition to the Big Six, he says, Canadians are now served by more than two dozen small- and mid-sized banks, upwards of 40 foreign banks, and a buffet of regional banks and credit unions—plus more than 60 insurance companies, 150 investment funds, hundreds of mortgage lenders, some 1,600 payment services providers, and an estimated 5,000 fintech firms. 

Furthermore, the policy environment that underpins the industry is moving towards multiplicity: “The sector is in flux,” explains Vass Bednar, an expert in competition policy and Managing Director of the independent think tank The Canadian SHIELD Institute. “We’re doing more to break open competition, and in some interesting ways.” 

Consider a few recent markers of progress: There’s the federal government’s introduction of legislation in November on both open banking (providing frameworks for the secure sharing of financial data with third parties) and stablecoin (establishing how crypto assets will be pegged to the dollar), competition-stoking policy measures described as “long overdue” by former Deputy Governor of the Bank of Canada Lawrence L. Schembri and economist Andrew Spence in a November Fraser Institute commentary. There’s a slate of long-gestating payment developments expected to improve consumer choice, including the recent implementation of the federal Retail Payment Activity Act and the pending launch of Payments Canada’s Real-Time Rails instant payments system. And there’s the mainstream traction of digital-first challengers, such as Wealthsimple, which expanded into retail banking services in June, and Questrade, which received regulatory approval to become a Schedule 1 lender and announced plans to integrate crypto into its platform in November. 

These developments are generating the kind of momentum many industry advocates have been seeking for years: “Bill Gates once said that no one needs a bank, but everyone needs banking, and that’s the state of play we’re starting to see right now,” says William Keliehor, Chief Client Officer of Peoples Group, a Canadian financial institution. “Through bold thinking, provocative partnerships, and the introduction of new players to the market, the face of banking is changing.”

Amid the near-daily news of new policies, new entrants, and new products, it can be easy to lose sight of what all this activity means for banking customers. Here, finance experts and leaders in the space detail what more competition means for the people and businesses whose money is on the line.

More choice

Not terribly long ago, a Canadian looking to send money overseas had limited options for how to do so. Even a straightforward wire transfer might involve a visit to a bank branch or money-transfer storefront, a stack of forms, and a fee (often a hefty one). Today, that same Canadian can compare options from several digital platforms, pick one that best suits their preferences, and feel they’ve made an informed choice. “More competition, open banking, and open finance are opening up a lot of people’s eyes,” says Keliehor. “They want alternatives. They want to feel more empowered.”

This is just one example of the ways in which banking is becoming a buyer’s market in Canada. As more players emerge, and as more incumbents diversify their options to adapt to evolving demand, it’s shifting the consumer dynamic to be less of a set menu and more of a buffet.

The ability to mix and match providers to meet different banking needs, and to do so with some peace of mind, is very appealing to consumers, says Bernice Cheung, Vice-President of Financial Services and Cultural Markets at and Environics Research, where she leads the company’s Syndicated FinTech Study, an annual benchmark of Canadian attitudes towards financial innovation. “Many Canadians like the idea of more choice,” she reports. 

That tracks with the experience of Cato Pastoll, CEO and Co-Founder of Loop Financial, a Toronto-headquartered fintech that provides international banking products for businesses. Pastoll has been working to encourage a more competitive finance ecosystem for more than a decade, and he’s noted a pronounced vibe shift. “Ten years ago, we were trying to move the needle from a policy perspective while also trying to educate people about why more competition was important,” Pastoll reports. “That sentiment has shifted quite dramatically. There is a much stronger awareness among customers that there are options that are not the traditional big banks.”

In a space as embedded in everyday life as banking, more options tends to have an empowering effect for consumers. “When people have more choice, it generally means there’s enough competitive pressure in the marketplace that there are significant pricing differentials,” explains Bednar. “It helps reduce the information asymmetry that exists between people and institutions so that people can make really good decisions.”

Better access

In recent years, Canada has evolved from a highly banked nation to a very highly banked nation: More than 99 per cent of individuals now have a bank account, a number that has crept up almost 10 points since the widespread introduction of low-cost banking options in 2001. And nearly 90 per cent of small businesses have access to credit, up from 81 per cent nearly a decade ago. “That’s thanks to competition in the system,” says Alex Ciappara, the CBA’s Vice-President and Head Economist. 

Still, for all this uptake, there’s room for improvement. Millions of Canadians remain un- or under-banked, with limited engagement with mainstream financial institutions beyond the basics. “Income volatility, thin credit files and newcomer status all make it harder to access appropriate products,” Cheung explains. “Traditional products are still designed around stable, full-time employment and standard life paths that do not reflect many Canadians’ realities.” On the commercial front, Canadian small businesses are increasingly seeking out non-traditional financing options, as capital needs intensify and median loan values drop. 

Experts believe competition creates more opportunities to fill in these gaps. As Cheung explains, an ecosystem that encourages many specialized players and offerings is more likely to provide the nuanced and niche services that fall outside mainstream needs or established behaviours. Consider the introduction of open banking: “It can enable tailored solutions that meet people where they already live their lives,” Cheung says. “It can turn existing habits into access points for better tools, rather than asking people to start from scratch.” 

The fact that the competitive landscape in Canadian banking is increasingly digital also improves access, says the CBA’s Hannah. Since any upstart or established financial institution with a good digital interface can now offer their products and services anywhere in the country, regardless of physical footprint, it’s creating options for underserved customers that weren’t possible in the past. “It’s all been dematerialized,” he says.

Improved experience

Competition as a driver of better customer experiences is a well-worn tenet of modern capitalism, even in the most conservative and established of industries. Indeed, the history of Canadian banking is full of examples of major banks introducing new and improved capabilities to keep customers from choosing a rival, from the debut of the country’s first ATM by CIBC in 1969 (which gave bank clients 24-hour access to cash for the first time), to the launch of online banking by BMO in 1996 (which sparked the now-common practice of banking outside of physical banks). “Competition forces banks and other financial services providers to have a better understanding as to their customers,” explains Ciappara.

As more players compete for business on more fronts (including digital), experts forecast a proliferation of customer-focused enhancements from upstarts and institutions alike. “As ecosystems and fintechs capture more engagement, incumbent banks are pushed to match on digital experience, personalization, and transparency,” Cheung says. She points to a few client-friendly features that have quickly become common in the expanded competitive landscape, such as streamlined digital sign-ups, intuitive mobile-first interfaces, and faster cross-border payments. When things like these become table stakes for end users, it prompts all players to think a little more carefully about what they are doing to meet market needs.

This is something Pastoll thinks about a lot, at Loop. In conversations with potential customers or partners, it’s sometimes assumed that fintechs like Loop are simply legacy services packaged in a slicker app or cooler branding. “It’s not actually about things like that,” he says. “It’s about providing something that makes it easier and more cost effective for customers to do what they need to do, which, in our case, is running a business.” (The fact that an average Loop client saves tens of thousands of dollars in fees per year tends to seal his case.)

As Canadian finance expands and diversifies, Pastoll believes the result will be an industry-wide shift away from what he calls “very vanilla and cookie-cutter” ways of delivering banking services to offerings that centre customer needs above all else. 

“I think choice creates innovation,” says Pastoll. “As Canadians start to have higher expectations, I think it will ultimately put pressure on all the right people to deliver better products and services.”

A more competitive future

For all the recent headway towards more competition in Canadian finance, it’s still early innings of a long game. Some believe there’s still work needed to balance forward-looking legislation with safeguards that comprehensively protect customers. (“Something like open banking has incredible potential for consumers,” Bednar points out. “It also has incredible potential for competitors to incentivize us to share our banking information, which can help build very granular and detailed profiles on us.”) There’s a risk of a policy about-face, and the ever-present possibility of consolidation threatens to negate efforts to get more players in the game. Canadian banking today is nowhere near the variegated vision that many in the space would like to see.

That’s why leaders like Keliehor say it’s critical to harness the enthusiasm of the current moment. “We need well-designed policy that both protects customers and empowers change,” he says. “We have a lot of momentum, we have a government that understands business, and we have sandboxes to stress-test hypotheses to see how things work in the real world. The time to double down is now.”

This content was paid for and directed by Peoples Group and was produced independently of The Logic’s newsroom in consultation with the advertiser. You can read our policies on advertising, sponsorships and partnerships here.