Big Banks Reign in Canada While New Challengers Seek to Gain Ground

It’s not easy challenging Canada’s banking oligopoly, but some are making the effort.

Challengers like EQ Bank and Wealthsimple are introducing new, more affordable offerings, expanding their customer base and increasing brand recognition. However, experts suggest that rather than posing a significant threat to the big banks, mid-sized players are more likely to be acquired by the larger institutions.

“The banking market in Canada is not known to be very competitive. It’s not going to improve,” said Claire Célérier, Canada Research Chair in household finance at the University of Toronto’s Rotman School of Management, who anticipates further consolidation.

This perspective follows RBC’s closure of its £13.5-billion acquisition of HSBC Canada in March, while National Bank is currently in the process of acquiring Canadian Western Bank in a £5-billion deal.

Fee competition

The exit of these two mid-sized players from an already limited pool of competitors leaves few with the scale necessary to even pose a distraction to the Big Six banks.

Wealthsimple is emerging as one contender, reporting this week that it has over £50 billion in assets—more than double from last year and over seven times what it had five years ago.

The growth experienced by the firm has led chief executive Michael Katchen to assert that Wealthsimple is the “first and only credible alternative to the big banks in Canada.”

The fintech company’s low fees are a key attraction, offering commission-free trading and low investment management rates as part of an expanding range of products in an attempt to fill the competitive void.

“When you eliminate the mid-range players, it makes the market even less competitive, and I think this is reflected in the fees Canadians face,” said Katchen.

The big banks insist that the sector is highly competitive, particularly in areas like mortgage rates.

However, consultancy North Economics estimated in March that Canadians pay over £7 billion annually in excess fees. This estimate was based on comparisons of financial results from Canada’s Big Five banks with those in the U.K. and Australia, where charges for accounts, overdrafts, and ATM withdrawals are considerably cheaper or free.

Consumers in countries like the U.K. benefit from proactive regulators who have implemented measures to simplify account switching, requiring banks to transfer all payment data and information to new accounts.

There’s little indication that such ease of switching will be introduced in Canada, prompting competitors like EQ Bank to encourage gradual changes.

“We’re trying to make it seem like a low-risk activity, allowing customers to open a new bank account while keeping their existing one,” said chief executive Andrew Moor.

The bank offers higher interest rates on accounts where customers have switched their payroll, which can serve as an incentive, he noted.

EQ Bank has also launched new products, such as its notice savings account introduced in June, which offers higher interest rates for customers who provide at least 10 or 30 days’ notice before making a withdrawal. Just last week, they introduced a bank account specifically aimed at small businesses.

“The advantage of being a medium-sized bank is that it’s much easier to bring innovative products to market,” said Moor.

These efforts have resulted in the bank’s assets roughly doubling over the past five years to approximately £54 billion.