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The Competition Bureau announced that it has launched a study on financial-technology firms, or fintech, amid questions over whether Canada has adopted the right approach toward fostering innovation and maintaining a sound financial system with current regulations.
The bureau said its focus would include the barriers to entry new players face and whether there is a need for regulatory reform that balances competition with consumer confidence.
"The Competition Bureau has a role as an advocate for competition, and our starting point is that competition is good," said Vicky Eatrides, deputy commissioner of the bureau.
"It aligns with the government's innovation agenda as well," she added.
The study follows comments from a number of bank executives who have been raising concerns that fintech firms – nimble players that are looking for ways to take business away from traditional banks or, in some cases, partner with them – enjoy unfair advantages over traditional banks because they are not as tightly regulated.
"I believe it would be appropriate for policy makers to consider a regulatory environment that ensures the safety of customer information and the integrity of our financial system," Bharat Masrani, chief executive of Toronto-Dominion Bank, said at the bank's annual shareholder meeting in March.
The Competition Bureau's study, expected to be released as a report next spring, should provide a first step toward addressing these concerns, but may also underscore differences between the incumbent banks and the upstarts.
"Canadians suffer from a lack of competition in financial services and pay some of the highest fees in the world as a result," said Andrew Graham, CEO of Borrowell, an online lender that helps consumers refinance credit-card debt at lower rates, in an e-mail. "Fintech companies are part of the solution by offering new and innovative options. We look forward to working with the Competition Bureau on this study."
A lot is at stake, potentially. According to a recent report by McKinsey & Co., globally banks could lose up to 60 per cent of their profits from retail banking as new competitors either take market share or drive down prices in areas such as mobile payments and online lending.
Rob Galaski, head of financial services at Deloitte Canada, said that thousands of fintech firms focus their efforts on profitable areas of financial services where consumers tend to encounter the most "friction" – or slow, stodgy service that can be rectified with smoother technology.
"A lot of these friction points have to do with differences in the regulatory environment," Mr. Galaski said, pointing to areas such as marketplace lending.
"Because a consumer doesn't necessarily know the difference between a fintech player and the services they get at a bank, you would assume that the protections they get in both cases are also equal," he said.
But it's another grey zone, he suggested, where the perception of consumer protection might not fit with reality – and the environment can be extraordinarily complex because new players pursue very narrow business opportunities rather than trying to compete with all bank services.
Miklos Dietz, a leader of McKinsey & Co.'s work on digital innovation in banking, noted that authorities globally have been wrestling with the issue of maintaining a level playing field but also allowing for healthy competition within financial services.
"This is a balancing act," he said. "Regulators are carefully spending significant resources trying to understand what fintechs are doing."
David Berman