Canadian banks have already seen multiple financial-technology players emerge over the past two years in the investing and lending space. Now, that competition is shifting into the deposit-taking business with the launch of mobile bank Koho in January.
Similar to Scotiabank's Tangerine and CIBC's PC Financial, the Koho platform is touting day-to-day banking transactions that include direct deposits, bill payments and electronic money transfers – all for free. Users can deposit money using an e-mail transfer, an online form for paycheques or by simply taking a photo of a cheque.
It then works like a debit card, but with budgeting tools built in that can be particularly useful for the younger demographic that Koho is targeting.
"Fees are a big issue in the Canadian banking space," co-founder and chief executive Daniel Eberhard says. "We don't think it is fundamentally right that Canadians are paying some of the highest bank fees in the world to some of the most profitable institutions in the world."
Koho makes its money when purchases are made on the card. A portion of the purchase – called interchange – is paid directly by the merchant to Koho. It usually works out to about 1.5 per cent of the total amount of the purchase.
Koho doesn't hold or move any money but has partnered with a chartered financial institution to hold all funds.
Through a partnership with Visa and People's Trust Co., clients will be able to get physical cash out of their accounts through Visa prepaid cards, including access to 8,500 automated bank machines run through the DC Bank network.
Similar to popular Web-based personal finance-management service Mint, Koho offers automatic goal savings and online daily budgets to provide more transparency around spending habits, Mr. Eberhard says. For example, a client can set up a $1,000 goal for a surfing trip that is 100 days from now. The tool will automatically calculate the daily amount needed for the goal and debit each day until it is reached. Mobile alerts will be sent out once a certain percentage of the goal is reached, such as 25 or 50 per cent.
Despite competing against some of the strongest and trusted banking brands in the country, the fintech company is getting noticed.
Earlier in the year, it raised $1-million in funding, including the backing of several well-known industry veterans: Joe Canavan, former CEO of Assante Wealth Management and investor in Canadian robo-adviser Wealthsimple; Lloyd Craig, former CEO of Coast Capital Credit Union; and Gil Penchina, a large Silicon Valley investor who has been involved with U.S. robo-adviser Wealthfront, LinkedIn and PayPal.
This is the third Canadian fintech company Mr. Canavan has helped launch, with online marketplace lender Borrowell also on his roster.
"Asset management, lending and banking – these three legs of a stool can really make financial services for Canadians less expensive and a lot more convenient," Mr. Canavan says. "These companies are not about disruption for the sake of disruption. I don't think the banks are lazy and lethargic but are invigorated by all this. These entrepreneurs are creating services faster and more efficiently than we have ever seen. It will force all the incumbents to take their game up."
Koho isn't set to open client accounts until Jan. 15, but already the company launched a promo site giving a brief introduction to what clients can expect. Within a month, more than 5,000 individuals joined a waiting list to open accounts.
Unlike the major banks, the platform is targeting a much younger generation, with the average person on the wait list being 29 1/2 years old and making $70,000 a year.
"Millennials are what I am and who I understand," Mr. Eberhard says.
Millennials are also less likely to be committed to one financial institution, with 53 per cent of millennials say their bank does not offer anything different than other banks, according to the 2014 millennial disruption index.
Nearly seven out of 10 affluent millennials – those with more than $100,000 in investable assets – would consider trying financial products and services from brands outside the finance industry, according to a report by Ipsos.
The platform currently does not offer any credit or lending capabilities, although Mr. Canavan believes the individual fintech players should work hand-in-hand.
"If you really want to serve the needs of your demographic, try and be more than one thing, " he says. " I am constantly encouraging the players I work with to consider being more and potentially linking their services."