Regulated banks offer security — you know your money’s safe there.
But overprotection in the Canadian banking industry has negative effects, including:
- Excessive credit requirements
- High-income Canadians ($150,000 salaries) still living paycheque to paycheque
- Arbitrary events that lower credit scores, like changing credit cards
Daniel Eberhard and Senator Colin Deacon discuss the limitations of Canada’s over-regulated banking industry and how to correct them at this year’s Elevate Festival in Toronto.
Here are some highlights from their fireside chat.
Canada’s banking climate is one of the least competitive in the world
Governmental red tape to become a bank or offer similar services prevents many new, innovative banking businesses from entering the Canadian market.
Eberhard describes Canada’s uncompetitive banking climate through the Lerner Index, an economic measure to assess price to product, where Canada was last ranked at 0.49 in 2014.
“0.1-0.2 is a healthy banking climate; everything above 0.4 is rare and non-competitive at all. The only country I’ve seen higher than Canada is Qatar. What happened in 2009, and did anybody opt into one of the least competitive banking climates in the world? What does that mean for everyday Canadians…or the 80% of Canadians who feel their financial position has gotten worse year over year?”
A lack of competition leads to banking services that don’t serve the people
Eberhard cites a fintech colleague that provides brokerage accounts in 100 countries, but not Canada. Meaning? Canada doesn’t have a competitive banking industry.
Economic experts reinforce time and time again that a lack of competition, or a monopoly, results in:
- Higher prices
- Less efficiency
- Rising inequality
Last month, Canada’s Department of Finance announced measures to protect Canadians from their banks. These include new mortgage guidelines, enhancing low-cost and no-cost banking options, lowering non-sufficient fund fees, and designating an external not-for-profit organization to handle complaints.
However, Senator Deacon asserts that Canada’s uncompetitive banking industry is no different from what economists have cautioned against in the last few decades:
“How we regulate our banks…is very separate (from) challenging our banks to deliver more customer-centric services…The more protected you are as an industry, the less customer-centric you become. You will become organizational-centric; you do what is good for your business and shareholders — that’s the job of a board of directors.
Open banking and fintech can make Canadian banking more customer-centric
The Canadian fintech market has been dropping since 2021, and according to KPMG’s H1 2023 report, investments have dropped down to pandemic levels. From the end of 2022 to the summer of 2023, they reported a 74% drop in investment value and a 28% drop in the number of deals.
Related reading: Canadian fintech investment continues to fall in 2023, says KPMG
Eberhard and Deacon see fintech competition as the answer to better, more inclusive banking services:
“What we’ve got to do is force that board of directors to get more innovative and aggressive in how they serve those customer needs. And how we do it is we introduce competition through financial technology services who offer customers things that are completely different than what the traditional banking system has been offering.”
