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New banks in Canada look to target niche markets

Slate of new banks suggest that some players see advantages in starting with a clean slate.

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When you think of sectors attracting new companies, banking might not spring to mind.

Yet three new domestic banks have sprung up since July and a fourth is set to announce its launch next month, bringing the number of federally regulated deposit-taking institutions to 31 – a remarkable 15-per-cent jump in just three months.

In a mature market that is dominated by an oligopoly of six big institutions, which control 90 per cent of the market, the slate of new banks suggest that some players see advantages in starting with a clean slate.

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"We don't have all that history and branch infrastructure, so we've been able to adapt some newer technology" said Charles Lambert, chief executive officer of Wealth One Bank of Canada.

The bank opened its doors in Toronto and Vancouver earlier this month, with a particular niche in mind: It wants to attract Chinese Canadians by offering services that fully support Mandarin and Cantonese speakers.

Other newcomers are also focused on particular slices of the financial sector.

Impak Finance Inc., which is expected to launch on Oct. 12, wants to be a socially responsible bank by lending only to companies that have a positive impact on the environment and society. It will be an online-only bank.

Last week, Florida-based Currency Exchange International Corp., which provides foreign-currency services to financial institutions and businesses, launched Exchange Bank of Canada. The new charter allows it to deal with other banks.

In July, New Brunswick-based Caisses populaires acadiennes changed its name to UNI Financial Corp. after it became the first Canadian credit union to obtain a federal charter (it remains a credit union, but follows the Bank Act).

Now regulated by the Office of the Superintendent of Financial Institutions (OSFI), UNI gains a number of advantages with the move: Its access to capital and liquidity improves, it can work outside the province and its credibility is boosted by OSFI's oversight, making it more competitive.

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"It was important for us to be nimble and efficient, so that we can compete with the banks and offer the same types of services and be on the same level playing field," said Camille Thériault, UNI's CEO.

The Big Six banks, which offer diversified financial services across the country and have combined assets of nearly $5-trillion, aren't likely to lose much sleep over the increased competition.

However, the new arrivals suggest that the barriers to entering the banking sector might not be as onerous as many observers believe. Some have argued that new financial technology companies, or fintech – nimble firms that devise effective online services – would never want to become full-on banks because of the regulatory burdens involved.

The newcomers agree that the path to bank-hood isn't easy, but they believe it is well worth the effort.

Randolph Pinna, CEO of Exchange Bank of Canada and its parent, said the process took nearly four years and will add more than $500,000 in annual costs, largely related to compliance and technology updates.

But the payoff should come relatively quickly: "I can get customers I wouldn't normally get," Mr. Pinna said. "Our target base is other banks, and some of those banks do not do foreign-exchange trading unless you are a bank."

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It took Wealth One about five years to become a bank. It has three retail branches in Ontario and British Columbia. However, it also offers personal and business banking services online – in Chinese and English – in an effort to attract both new immigrants and established families wherever they live.

"I believe our products and our value proposition can be competitive with some of the other banks in the industry," Mr. Lambert said.

No doubt, other players are taking a similar view.

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