Of course, in its purest form, banking is a reliable and established financial service. However, times change. People change. Customer wants, needs and expectations change and with all respect for nostalgia and traditions like chequebooks, monthly statements, branches with customers lined up single file and tellers making chitchat while counting off a stack of bills, banks change.
The warp-speed changes and transformation of technology are not sparing classic, conventional and beloved banking. Some go as far as to suggest that it is now, more and more, state-of-the-art un-banking or, as even the conventional banking sector acknowledges, “open banking.”
Savvy financial and tech experts emphasize that, despite the dazzling and transformational technology, it’s still the basics of customer service.
“With approximately 98 per cent of Canadians integrated into one or more financial institutions, it’s more about the challenge of being under-serviced than it is to be unbanked,“ says Diederik van Liere, chief technology officer at Wealthsimple Inc., the Canadian online investment management service which currently holds over C$50 billion in assets under management.
“So, the opportunity for fintechs is to fill the gaps, which relies on reducing friction in payments, fees, 24/7 access to account and portfolio management, plus global wire transfers. The advantage of fintechs compared to the banking legacy players is the agility to create evermore friction free experiences for the customer. That’s what it’s all about.”
Neo Financial, the western Canada based “neobank” whose daring battle cry and website boldly declares “What if the future of banking wasn’t a bank?” prides itself about “No branches. No lines. No limits. Just innovation.”
Jeff Adamson, co-founder and head of partnerships at Neo explains that, “Almost everything we do has been made better with technology, so why hasn’t the way we manage our money? After all, the immediate future of fintech banking is all about speed and simplicity, using technology to create seamless, low-friction experiences for customers.
“The future of fintech lies in empowering customers to make informed financial choices. In a landscape where financial complexity can be overwhelming, Canadians deserve more than just transactions. They need meaningful insights into their financial behavior.
“As data insights grow richer, fintechs can offer more than traditional services, providing actionable intelligence on spending, saving, and budgeting.”
He mentions that the new un-banking continues to innovate, offering financial services that are not only more accessible but also anticipate customers’ needs, providing real-time support and solutions.
“It is the shift which is setting fintechs apart in the financial sector.”
Despite the excitement about fintech inroads into Canadian banking and suggestions about a trend of un-banking, McKinsey & Company, the influential global management consultant providing services to governments, corporations and other organizations, suggests the uptake of digital financial services in Canada is low, compared with other similar economies. For example, according to the McKinsey report, only 13 per cent of Canadian banking customers used fintech solutions, compared to 32 per cent in the UK.
More awareness is needed about the benefits of fintechs. In fact, McKinsey cautions that Canada’s financial services industry may be a textbook case of an industry primed for disruption by fintech. It acknowledges that Canada’s banking industry is large compared with other G-7 countries. Last year, banking revenues of $180 billion accounted for 7.9 percent of GDP, compared with 5.8 percent in the United States and an average of 5.6 percent among other developed economies.
The report also notes that Canadian banks are also more profitable than those in other developed economies.
Experts say that change is due, perhaps overdue, in Canada’s banking sector. The fact that the Canadian financial services industry is highly concentrated is likely an indicator that innovators are shaking things up. Even partisan tech boosters shy away from suggesting a tech revolution in Canada’s banking sector; the transformation may be more subtle and gradual.
While there is merit that Canada’s banking system is established, solid, revered and relied on by customers, there is also undisputable change with the times. It’s complicated, but bank branches are shrinking and more and more customers, no longer lining up for the teller’s help, are doing their banking and investing online at home.
The impact of fintech is inevitable due to the positive and emerging embrace of technology by Canada’s financial sector.
Recent stats and surveys show that Canada ranks among the world’s top five countries for smartphone penetration, internet usage and higher education levels. New technology is a fact of the new baking.
“Embedding technology into financial services is not so novel,” explains Abraham A. Tachjian, director and head of open banking for PwC Canada. “Financial institutions have been doing it for quite a while, since the popularity of ATMs. As other day-to-day services continue their march towards digitization, financial services consumers have come to expect similar capabilities and experiences from their banking providers. So, conventional banks are expanding their product propositions.
“In the past, they focused on narrower offerings. They are now expanding their portfolios to a broader breadth of services. He adds that, with open banking around the corner, fintechs will soon have access to financial data that their consumers consent to sharing with them. This will improve their ability to personalise products to the specific needs of their clients.
Wealthsimple’s van Liere underscores the transition to un-banking.
“The use of AI and machine learning will definitely create exceptional new opportunities for personalised banking. As with everything AI, progress is seemingly exponential and will provide customers with more transparency (less complex and a lot more user friendly than conventional banking) and essentially more empowerment over one’s banking, payments and wealth management strategies.”
He mentions that, in many ways, AI could actually narrow the so-called “financial literacy” gap. Fintech advantages, like reduced banking fees, provide faster and more accessible banking options, payments, wealth management transactions and generally give customers a greater sense of control and knowledge over their financial status and future.
Many fintech financial services have already caught on and are replacing traditional banking features. Currency conversions. Fund transfers. Mortgage applications and renewals and more. Fintech is a key part of the new un-banking, and just the latest example of the importance of supply and demand in business and customer service.
“Newcomers to Canada often say they find a fantastic country but a medieval banking industry,” Adamson chuckles. “When they see Neo, they are reminded of the digital-first, customer-centred banking experiences they knew back home, whether from the UK, India, Asia or South America. Neo brings that modern, accessible approach Canadians deserve.”
Tachjian tracks the fintech transformation, “There are some notable companies offering banking-like services without actually holding banking licenses. Others are helping consumers make better financial decisions and improve their credit rating. The payment space is also quite hot. Other fintechs are focused on the SME space. This includes tools to manage spending as well as cloud-based accounting services.”
He is enthusiastic about the open banking future being bright.
“As fintechs, along with other stakeholders, will soon be empowered with consumer-permissioned data via open banking, they may, in the future, have access to Canada’s real time payment rails to move money. We are definitely at an inflection point in financial services!”
