Market is generally stable and very conservative amongst the big banks. The biggest shift over the last 20 years lies within international banking crises and the growth in regulatory impacts designed to ensure Canadas financial system maintained stability, despite the increasingly international character of the crises. This is particularly true between Canadian and US Banks.The US has a uniquely diverse group of banks ranging from “Too Big to Fail” to smaller regional player. The US uniqueness has been preserved through Government intervention and support for “Too Big to Fail” to become de-facto lender of last resort.
The Basel framework brings standardised and increased focus on Capital, Liquidity, Resilience and Stress Tests. OSFI through its focus on resilience watches source of bank funding closely being a driver of Liquidity. The best example is the typical mid-sized mortgage lender using wholesale GIC as their primary funding. OSFI have singled the group out and one outcome has been new digital banks designed to source deposits in savings and GIC direct to consumer online. Other examples are on asset side where auto lenders are taken over by banks with diverse mix of assets and liabilities.

Major types of Financial Institutions

1. Big Six Banks

2. Mid Size Banks
3. Small Banks – generally specialised (mortgages, auto, wealth)
4. Credit Unions
5. Caisse Populaires
6. Online-only Banks and Fintechs (Digital Banks or “Neo Banks”)

Regulatory Framework

• Banks (~ all Schedule I): Federal regulation OSFI (Risk, Resilience, Basel framework)
• Credit Unions: Primarily regulated provincially, some federally
• Fintechs: some of the largest Canadian are fintech companies have one to three areas of focus, payments, deposits, or wealth, The Canadian fintech landscape is rapidly evolving, with over 900 fintech companies many in payments or crypto. Regulation is unclear.

The burning platform for banks is a systemic threat to the banking model comes from consumer preference. Societal change has been largely driven by technology shifts that see personal technology in the consumers hands. This took on new broad based acceptance and interest in 2007 with the introduction of the iPhone.
These shifts have unearthed otherwise hidden gaps in core banking technology systems and demonstrated collective similarities across all banks. Their system are fractured, centered on product, rather than on the consumer. This is a result of bank mergers, takeovers and new system additions added to the mix. Customer A can be found in as many systems as the bank maintains. But there remains one Customer A and when A expects something as innocuous as online banking they expect everything in one place, and are sorely disappointed.
These drivers have resulted in many pain points with data the largest problem from this broad and diverse mix of systems and difficulty wth associating customers definitively between systems.

While there are many pain points for banks including, cultural, system structure and data frameworks to name a few. Data remains the largest pain point and a significant cost accompanying change.
Despite the obvious need to address the pain point the headwinds are so costly that the banks’ collectively keep their heads firmly in the sand and so long as no bank goes against the status quo this area is largely not addressed and the status quo is maintained. Transformation hesitation begins with fear of breaking the current model and upsetting the status quo and living with the pain points, primarily data and data frameworks.

Here is a summary of the analysis on maintenance of status quo problems

• Transformation hesitation begins with fear of breaking the current model and reducing profits
• driver of cost
• cultural difficulties

Banks rely on changes in Canada driven by Government through regulation for equally shared services such as Symcor, Payments Canada and Interac.

• Fintechs are not taken seriously in a market share sense.
• The case for “Open Banking” was addressed in the 2024 Federal Budget yet stymied by the Banks as a risk to their market share equilibrium
• Transformation is resisted unless both regulated and protected by non interference with competitive equilibrium

Next Steps – some early thoughts on breaking the logjam of transformation • What acceptable opportunities exist through Symcor, Payments Canada and Interac. Proprietary work is underway through myself and colleagues.

Temenos Opportunities:

• Temenos Payments offering an opportunity as a shared, regulated and regulated service
• Cybersecurity through Temenos Cloud offerring a common secure service under an Enterprise Firewall.
• How can Temenos address Zero Trust to lower or eliminate the growing threat of Ransomeware and foreign government bad actor phishing activity and flawed employee processes in password management
• More being developed in payments and resilient security

Citations:
[1] https://kpmg.com/ca/en/home/media/press-releases/2024/08/canadian-fintech-investment-hit-high-in-h1-2024.html
[2] https://www.innreg.com/blog/top-10-small-fintech-companies-in-canada
[3] https://fintechmagazine.com/articles/top-10-fintechs-based-in-canada
[4] https://www.springfinancial.ca/blog/lifestyle/best-fintech-companies-canada
[5] https://www.pwc.com/ca/en/industries/technology/canadian-fintech-market-map.html
[6] https://www.fool.ca/investing/top-canadian-fintech-stocks/
[7] https://www.fintech.coffee/research/canada
[8] https://en.wikipedia.org/wiki/List_of_banks_and_credit_unions_in_Canada