Your money isn’t available. Yes, that’s right. It probably comes as a bit of a shock. Your banking app is down, too—that’s just a part of this whole thing. You read the message, though, right? I think it says something like, your financial services are not available. Not very helpful, is it? They should have given you more information. It’s not just that the app is down, but your entire bank is closed. Everything you’ve put into your accounts, all of your savings—that nest egg you put away for the basement renovation, and the money you earmarked for the trip to Kelowna to visit your sister and her family—that money is no longer there. What happened to it? Not sure. It’s too early to say, really. But it’s gone. Hey, remember that favorite restaurant of yours, the one with the green spinach fettuccini and those cute little ceramic cups and the back patio that was hidden away from the rest of the city? Remember how it went under and they just kind of closed their doors and left a note on the front window? This is just like that. Sometimes businesses fail, right? Well, sometimes financial institutions fail, too. Unfortunately, yours failed today. Your money is gone.

It’s hard to imagine hearing something like that, isn’t it? Without a doubt, it would be a little unnerving waking up one morning to the news that your financial institution is suddenly insolvent, and your life savings have somehow vanished overnight. But, strangely enough, that’s exactly what happened on June 4, 1996, when 2,600 Canadians woke up to the news that Security Home Mortgage Corporation based out of Calgary, Alberta, had failed. With it, $42 million in deposits and personal savings were up in the air.

So, what exactly happens to your savings when a Canadian bank fails?

What Is Deposit Insurance and How Does It Work?

When you put your money into a financial institution, you kind of expect it to be there when you need it. You don’t expect that your financial institution will lend that money out to so many defaulting borrowers that it drives itself into insolvency. After all, you’re handing your hard-earned cash over to a reputable financial institution—not an unreliable friend with money problems. (I’m looking at you, Jon.)

But despite all of the regulatory controls that help contribute to the stability of the Canadian financial system, bank failures can still happen. In fact, there have been 43 bank failures in Canada since 1970, but, incredibly enough, the majority of affected customers recovered all of their savings during each one of those failures. That’s because every one of those 43 financial institutions was covered by something called deposit insurance.

In Canada, Schedule I and Schedule II banks can accept deposits from the Canadian public, and each one of those institutions is required to be a member of the Canada Deposit Insurance Corporation (CDIC). The CDIC is a Crown corporation that was established by the federal government in 1967 and mandated to provide deposit insurance protection to each one of its member institutions.

It works like this. On the most basic level, banks and financial institutions do two things: They take money in, and they lend money out. In order to make a profit, they must ensure that they charge a higher interest rate on the money they lend out and a lower interest rate on the money they take in. This is called their spread. The model relies on two types of customers: borrower and depositors. The problem with this arrangement is that not all borrowers will pay back the money they’ve borrowed. Some of them will default. If too many of them default, the financial institution becomes insolvent.

On top of that, if a financial institution lends out the majority of its deposits and doesn’t have the money to pay back its depositors it can lead to something called a bank run. A bank run occurs when many clients withdraw all of their deposits and savings from a bank at the same time in fear that the bank may fail. This fear of insolvency can pick up momentum quickly and actually drive a struggling financial institution into insolvency.

Deposit insurance helps combat both of these issues. With a third-party offering to protect depositors’ money in the event of a bank failure, they can rest assured that their money is safe in the event a financial institution falls into insolvency. That promise also helps ensure that depositors won’t take their money out all at once and force a bank run.

What Is CDIC’s Fast Insurance Determination?

In order to ensure depositors get their money back quickly in the unlikely event of a bank failure, the CDIC requires all member financial institutions to adhere to their Fast Insurance Determination (FID) data and system requirements. The FID process ensures that CDIC can immediately step in and take control of a financial institution’s data within hours of a bank failure in order to extract important deposit and liability information. Following a bank failure, that deposit and liability information is loaded into the CDIC’s payout application, which organizes payout information and allows CDIC to make payments of insured deposits to depositors within just a matter of days.

The CDIC and its Fast Insurance Determination process play an important role in ensuring the stability of the financial system in Canada. It protects eligible deposits at each of its member financial institutions to a maximum of $100,000, in each of the following separately insured categories:

• Deposits in one name
• Joint deposits
• Deposits in trust (including RESPs)
• Deposits in TFSAs
• Deposits in RRSPs
• Deposits in RRIFs
• Mortgage tax accounts

Think of it this way. Maybe you’re not comfortable handing your money over to your unreliable friend. But if that unreliable friend had a reliable mom who promised to pay you back in the event that he couldn’t, you’d be a lot more comfortable handing your money over. CDIC is kind of like that reliable mom.

That reliable mom that shouldn’t have to do this for you again.

Interest in learning more about GIC’s and Term Deposits?

Portfolio+ provides content for different types of consumer financial products.  If you wish to continue exploring and learning about finances, we encourage you to see our blog section.

For financial institutions and businesses that offer financial products, consider software that allows your business to set up, manage, and maintain your operations.  Our API’s automate your processes and ensures a better customer experience.  Contact our team today to learn more.

Sources:

https://www.cdic.ca/your-coverage/deposit-protection-for-all-life-stages/cdic-articles/bank-failures-in-canada-a-history/

https://www.ratehub.ca/blog/15392/

https://www.cdic.ca/your-coverage/

https://www.cdic.ca/about-us/our-history/history-of-failures/

https://en.wikipedia.org/wiki/Bank_run

The post What Is Deposit Insurance and CDIC’s Fast Insurance Determination? appeared first on Portfolio+.

 It’s OK to admit that maybe there’s a point where your understanding of the banking landscape kinda-sorta-slips-away-from-you. Maybe you know a thing or two about investment banking. Maybe you’re even a bit of a specialist in personal investments at your firm. The kind of person everyone goes to for advice on the best investment strategy for clients under 30 who own their own home in Toronto’s Eastside and somehow have extra money sitting around to invest in common stocks and market-linked investment products with compounding interest. We’re being hypothetical here. The King of the Water Cooler they call you. At any given party, you’re the one person that can confidently list out the pros and cons of all the different types of guaranteed investment certificates, if only they just had parties where people talked about guaranteed investment certificates. In fact, if someone did throw a party like that, it would be you. You sure know a lot about this stuff. But there’s just one area that you’ve never really understood because it’s just too, well, boring—yes, even for someone that gets easily excited about GICs. We’re talking about that area where banking crosses a line and slips into the realm of regulation.

It might feel different over here in the world of financial regulation. The sky seems different somehow, and the people talk in long-winded phrases, saying things that you know could be said in less words. But don’t be intimidated! There are some important concepts over here that you might need to know. After all, federal regulations in the financial industry are specifically designed and implemented to ensure the stability and integrity of the Canadian financial system as a whole. They’re there to foster competition and protect consumers. Along with a strong fiscal management policy, our regulatory environment is often quoted as the prime reason why Canada’s financial system is considered one of the safest in the world. One term that often arises in issues concerning regulation in Canada’s financial industry is the concept of a Schedule I bank.

So, let’s start there. What is a Schedule I Bank? And why is it different from other banks?

What Are the Criteria for a Schedule I Bank?

You probably have a good idea about which Canadian financial institutions might fall under the definition of a Schedule I bank. They’re some of the most common names you see in the industry and include “The Big Five,” a term that references Canada’s five multinational financial conglomerates: Royal Bank of Canada (RBC), Toronto-Dominion Bank (TD), Bank of Nova Scotia (Scotiabank), Bank of Montreal (BMO), and Canadian Imperial Bank of Commerce (CIBC).

You might be surprised to know that Schedule I banks also include some of the Big Five’s subsidiaries and associated brands, including Simplii Financial, a direct banking brand of CIBC, and Tangerine, a subsidiary of Scotiabank.

The Big Five are all considered Schedule I banks, and they all have subsidiaries that are operating outside of Canada. There is one other loosely defined category of Schedule I banks. The banks that fall into this category are often called second-tier banks, which are Canadian-owned institutions that operate exclusively in Canadian domestic markets.

Sometimes called chartered banks, Canada’s Schedule I banks are all regulated under the federal Bank Act and supervised by the Office of the Superintendent of Financial Institutions (OSFI). As of this writing, OSFI currently lists 36 Schedule I banks under its supervision.

So, what it is that makes a bank a Schedule I bank? In order for banks to receive an operating license—or charter—and become a Schedule I bank in Canada, they must meet certain criteria.

A Schedule I bank in Canada:

• Must be a Canadian-owned domestic bank
• Must not be a subsidiary of a foreign bank
• Is allowed to accept deposits from the public

In addition to these criteria, Schedule I banks are also subject to ownership stipulations that are based on an institution’s size or, more accurately, its equity. Let’s cover institution sizes first before exploring ownership restrictions.

Legislation passed in October 2001 categorized Schedule I banks into three different sizes:

• Large (greater than $5 billion in equity)
• Medium ($1 billion to $5billion in equity)
• Small (less than $1 billion in equity)

That’s fairly straightforward. See—I told you not to be intimidated.

So, what about ownership restrictions?

Well, even before the October 2001 legislation, large banks were required to be widely held. At that time, a single shareholder could not hold more than 10 percent of shares. Following the October 2001 legislation, the federal government simply expanded on that requirement “to allow an individual investor to own up to 20 percent of any class of voting shares and 30 percent of any class of non-voting shares of a large bank” (Daniel 9). In addition, the legislation added that medium-sized banks must have a public float of at least 35 percent voting shares, while small banks are not subject to any ownership restrictions (Daniel 9 – 10).

That basically covers it. Schedule I banks are Canadian-owned banks that are either large, medium, or small. Large banks with over $5 billion in equity must not have a single investor own more than 20% of voting shares or 30% of non-voting shares. Medium banks with $1 billion to $5 billion in equity must maintain a public float of at least 35% of voting shares. And small banks with less than $1 billion in equity have no ownership restrictions.

Schedule I Banks Are Large, Medium, and Small Domestic Banks

This may sound like a lot of noise, but the concept of a Schedule I bank is actually fairly straightforward when you strip away all the legislative jargon. We know that Schedule I banks are domestically owned and are authorized to accept deposits. On top of that, they’re either large, medium, or small—that’s not much different than your average latte. The only other consideration is around ownership and voting shares, which is hardly the kind of detail you want to delve into at your next party where everyone is psyched to talk about guaranteed investment certificates and Schedule I banks, anyway. Just stick to the simplest details. After all, that’s how you got the name King of the Water Cooler in the first place.

Contact Portfolio+ and OSFI Early If You’re Thinking About Starting a Bank in Canada

Incorporating a Schedule I bank in Canada is a lengthy process that can take up to 18 months to complete with a three-step phased approach that includes two significant approvals and strict application timeframes. It’s not for everyone. The benefit of incorporating a bank in Canada is that you can accept deposits from the Canadian public, which can provide a financial institution with quick access to funds in the form of nominee name GICs.

If this is something you’re considering, I recommend reaching out to Portfolio+ and OSFI early in the process. Portfolio+ has been through this process numerous times and can help provide guidance around the banking system, interfaces, and technology requirements that OSFI will require from each financial institution.

Contact Portfolio+ today.

The post What Is a Schedule I Bank? appeared first on Portfolio+.

The post The Different Types of GICs and Term Deposits appeared first on Portfolio+.

You’re here for one of two reasons. The first reason: You’re a financial service visionary about to set off an epic journey of establishing Canada’s next Schedule I bank. You’ve come armed with an entirely new banking idea that aligns with the boom of open banking in Canada and blends next-generation technology with personalized banking experiences that tech-savvy Canadians have never seen before. You’ve recognized that the relationship between people and technology has evolved faster than the traditional banking system could adapt, and you see flaws in a system that are starting to look a lot less like flaws and a lot more like opportunities digital banking in Canada.

Maybe your idea is to launch a digital banking app that caters to millennials entering the world of personal investing. Or maybe you’ve uncovered an underserved niche market and have plans to launch a semi-automated mortgage underwriting app for people interested in financing luxury motor coaches or private aircraft. There’s also a chance that you lead a major retail chain that’s thinking of launching a vertically integrated payment program, and you already know the benefits of tapping into the nominee GIC deposit market to gain quick access to an affordable funding source. If you’re here for the first reason, you’re here to learn how to start a bank in Canada.

If you’re here for the other reason, then you’ve accidentally stumbled onto this post after Googling “how to open a bank in Canada” when you really meant to search “how to open a bank account in Canada.”

Either way, you’re about to learn how to open a bank!

Breaking Down OSFI’s Three-Phased Application Process for Opening a Bank in Canada

First of all, you’re in the right place and the wrong place all at the same time. Now let us focus on what do you need to open a bank account in Canada. The process doesn’t start here. Every person or group interested in incorporating a bank or deposit-taking financial institution in Canada will start at the same place and follow the same application process—a three-phased approach that’s administered by the Office of the Superintendent of Financial Institutions (OSFI). That’s the place to start.

OSFI is the federal government’s agency that’s in charge of supervising and regulating all chartered banks in accordance with the Bank Act. More importantly, it’s also the agency that’s responsible for assessing applications for incorporating banks and making recommendations to the Minister of Finance. After receiving a recommendation from OSFI, the Minister of Finance has the ultimate responsibility of approving applications for federally regulated financial institutions (FRFIs) in Canada.

OSFI’s application process is broken up into the following three phases, which the agency has structured in order to provide guidance and feedback throughout the lengthy application process:

• Phase 1: Pre-Application
• Phase 2: Letters Patent
• Phase 3: Order

Phase 1: What is OSFI & What Do You Need for OSFI’s Pre-Application Process?

At this point, you should know that the application will cost somewhere in the area of $33,000. That’s the price for the letters patent of incorporation. If that feels like pocket change right now, then you’re ready to move on! There are also certain criteria you must meet in order to become a Schedule I bank—so make sure you’re eligible first. A Schedule 1 bank must be Canadian-owned. On top of that, there are three categories of Schedule 1 banks with different ownership restrictions that are based on an institution’s equity. OSFI will also require that you have a paid-in capital of at least $5 million. The Minister of Finance may require you to have more.

Are you ready to learn what is OSFI’s? Here we go! OSFI’s application process starts with an interview. Prior to meeting with them in person to discuss your application, you’ll need to prepare a written proposal outlining the reasons why you’re applying to become a bank. OSFI will use this proposal to facilitate and guide your conversation during the interview process. They’ll be looking for details about your business strategy, target markets, ownership structure—even your proposed management team.

If you still want to proceed with your application after the initial interview, OSFI will ask you to submit an information package. This is where things get serious. You’ll need to disclose detailed information about your institution’s ownership, including classes of shares and the percentage of shares held, along with all of your financial statements for the last three years.

OSFI will also want a finely detailed business plan covering the next five years. Your business plan should include information on what financial services you’ll be offering and in which jurisdictions, as well as an analysis of target markets, competitors, and a breakdown of opportunities and challenges and how you’ll address them. You’ll need to outline risk-based capital and leverage ratios along with pro forma financial statements of the next five years—in other words: You don’t have to see the future, but you should have the financial details of how it’ll play out.

This is your opportunity to show your financial strength, create your case on paper, and provide a detailed plan that’s strong enough to convince the regulator that you’re proposed institution will have a viable chance at success in the marketplace. So, show your cards. OSFI wants to see every detail of your business, from your trading and investment strategy to what information technology environment you’re planning to use. If you’re still reading at this point, this is where we can help you out—many banks have received their charters after proposing a Portfolio+ core banking platform.

If you satisfy OSFI’s pre-application process, you’ll receive a letter from OSFI that highlights the agency’s concerns and expectations.

Phase 2: How Do You Obtain Letters Patent of Incorporation?

If you’ve made it to Phase 2, you’re well on your way to opening a bank. This phase is all about receiving OSFI’s recommendation and obtaining letters patent of incorporation from the Minister of Finance. This phase starts with a simple publication. You must publish your notice, or intention, to apply for letters patent in the Canada Gazette—the official newspaper of the Government of Canada.

Once your notice is published, you’re ready to submit your formal application for letters patent. You’ll have to prepare a second information package that builds on your first and covers specific details about your board of directors and management structure, as well as your risk management framework, operational policies, and regulatory compliance controls. You’ll also need to provide details about your proposed IT framework, software, and any integration with third-party systems. If your business plan includes GICs or deposits, you will be required to be a member of the Canada Deposit Insurance Corporation (CDIC). You won’t have to submit a separate application to CIDC, though—OSFI will inform CDIC about you.

Based on a positive review of the information you provide, OSFI will make its recommendation for letters patent to the Minister of Finance. Your proposed bank is officially a bank when you receive your letters patent—you just can’t begin operations until you receive an Order from OSFI.

Phase 3: How to Obtain an Order for a Chartered Bank

You’re not out of the application process yet. You still need an Order. Once the letters patent are issued by the Minister of Finance, you have one year to receive an Order from OSFI. OSFI is not permitted to make an Order after one year has elapsed. OSFI may request more information during this process, and you should be ready to respond to requests in a timely manner.

The most important aspect of phase three is an onsite review. OSFI will send you a pre-commencement letter and will visit you to assess your operational readiness and ensure that you have all the controls in place that you’ve outlined throughout your application process. You will receive one final letter following the onsite review that captures any final concerns OSFI may have.

You’re almost there! OSFI wants to see meeting minutes for the first Board and shareholders meetings, as well as confirmation of amounts paid for incorporation, and a final letter from you promising that you’ll let OSFI know of any changes to your business plan.

And that’s it! Once you’ve satisfied all of the requirements, OSFI prints your Order and publishes a notice of it in the Canada Gazette. Cut it out and stick it to your fridge! You’re one of the elite few that have met the requirements of a regulator that supervises a financial system that’s considered one of the safest in the world.

View OSFI’s official  Guide for Incorporating Banks and Federally Regulated Trust and Loan Companies.

Up Next:

Sources:

https://www.osfi-bsif.gc.ca/Eng/fi-if/app/aag-gad/Pages/instguide.aspx

https://www.osfi-bsif.gc.ca/Eng/fi-if/app/aag-gad/Pages/sf.aspx

https://business.financialpost.com/news/fp-street/how-to-build-a-bank

The post How Do You Open a Bank in Canada? appeared first on Portfolio+.

White labeling is where companies take third-party manufactured products, throw their own label or brand on it, and market the products as their own. It happens everywhere. You might not know when you encounter a white-label product, but you’re not supposed to know. That’s entirely the point. Sometimes called private-labeling, white-labeling gives brands an opportunity to create entirely new customer experiences without all the work of—well, you know—actually creating new products.

So, what is a white label bank? Well, a white label bank is a Banking as a Service (BaaS) provider that uses a bank’s application programming interfaces (APIs) to build its own white label banking platform financial products over a licensed bank’s existing infrastructure.

Now, there’s a lot of information packed in there. So, let’s take a different approach.

Think of any finished product. Seriously, go for it! It could even be a bank—or a fintech, as we’ll explore shortly—but it could be a line of clothes or beauty products. Really, just about anything. Now, imagine dipping that finished product into a big bucket of white paint. When you pull it out, it’s basically an entirely new product that’s free for you to make it your own! You have complete creative control over how you’re going to influence its existence in the market—once the paint dries, of course. So, you throw a flashy new logo on your product, create some wonderful branded customer experiences, develop an Instagram following and community around it. Maybe you even make socially responsible, ethical decisions that influence the way that product is produced, doing everything in your ability to ensure your new thing—your very own white-labeled Seussian Thneed—reflects your brand’s commitment to a more sustainable world.

Pretty neat stuff.

This is the idea behind white-labeling. You take a complete product, and you brand it to make it your own. You can see how a white-labeled, third-party product quickly becomes your product. Of course, this isn’t entirely literal—you don’t actually dunk anything into a bucket of white paint unless you want to either ruin it or make it white. White labeling is about putting your brand on something and making it better.

That’s what white label banking is all about, too.

White-labeling gives brands the opportunity to explore new revenue avenues, providing complete control over branding and customer experience, while also offering a high level of control over aspects of production, pricing, and profits. For new brands, it offers even more: It gives them a finished product as a starting point to make it their own.

White-labeling is everywhere. It’s especially prevalent in the retail industry, where major retailers often throw—or very carefully place—their own brand onto a product. In many cases, they’ll even reach out to third-party manufacturers for help in creating an entirely new product that they can brand and throw onto their shelves in order to build entirely new customer experiences.

Although white-labeling is a common strategy in retail, it’s only just becoming an increasingly popular strategy in banking, particularly among fintech and neobanks. In fact, there’s an open banking model that enables white label banking called Banking as a Service (BaaS), and it’s the technology stack where white-label banks and neobanks are made.

White Label Banking is Also Called Banking as a Service (BaaS)

Banking as a Service—or BaaS—is the trendiest new term used for white-label financing/banking. The two terms aren’t synonymous, but they’re pretty close. You see, white-label banking has been around for a while now, but the BaaS model makes it even more relevant today, as the industry edges its way into open banking and a future of consumer-directed finance here in Canada. You can think of BaaS as a kind of pre-packaged, white-label banking framework. The basic BaaS model allows brands to build innovative financial services solutions into their own customer experiences using modern API-driven platforms.

Ultimately, BaaS is a model for creating white label banks.

Designed as a three-layered technology stack, the typical BaaS stack involves three players: regulated banks, fintechs, and brands. Regulated banks act as the foundation of a BaaS solution, providing the banking license, and handling all the regulatory and legal obstacles. Fintechs service providers occupy the middle layer of the stack and handle the as-a-service component. And brands occupy the top layer of the stack, controlling things like the customer experience, the branding, and often the user interface and digital experiences.

In this model, brands are considered the white-label-er, so to speak. But with white-label banks, those top two layers of the BaaS stack are usually controlled entirely by the middle player: the fintech.

Neobanks Are Fully Digital, White-Label Banks that Occupy the Top Two Layers of a Banking as a Service (BaaS) Stack

Although white label fintech typically provide the as-a-service middle layer, they will sometimes occupy the top two layers of the BaaS technology stack. Partnering only with a licensed bank that handles the legal and regulatory legwork, these fintechs provide the as-a-service financial products while also owning the brand and customer experience. These important white label fintech players are typically known as neobanks.

Neobanks are 100% white-label banks.

Neobanks maintain a digital-only presence focused on highly specialized financial services and customer-centric experiences without all the overhead of physical branches through white label banking platform. They create their own bank brand, connect to a licensed bank using APIs, and develop their own financial products and customer experiences.

In simpler terms, they take a bank, dip it in a bucket of white paint, and make the banking experience better.

Is White Labeling, You Know, Dishonest?

Now, wait just a minute! Isn’t this white-label banking thing just branded trickery? No, not at all!

At least, you shouldn’t think of it that way. Banks aside, think of all the steps involved with manufacturing any product. Components of any given product are often made by different manufacturers in different locations around the world. Think of any given supply chain required to make a branded thing: It’s only the end brand that gets to control that thing’s place in the market. A neobank doesn’t see a licensed bank as a finished product. In fact, many of them just want to avoid the arduous process of becoming a chartered bank. This is really just an alternative. They see a white-label bank as a better starting point for creating the innovative, branchless banking experiences they’re envisioning.

In a way, white-labeling kind of happens with everything. And in financial services, white-label banks or white label digital banks aren’t trying to replicate the traditional banking model. If anything, it’s usually the opposite.

They’re trying to change it. They’re trying to make it better.

And BaaS is their bucket of white paint.

Sources:

https://www.businessinsider.com/private-white-label-banking#:~:text=White%20label%20banking%20is%20another,financial%20products%20with%20existing%20infrastructure (Retrieved October 21, 2020)

https://info.11fs.com/hubfs/Banking%20as%20a%20Service_reimagining%20financial%20services%20with%20modular%20banking.pdf (Retrieved September 25, 2020)

The post What is a White Label Bank? appeared first on Portfolio+.

It’s the question we all wished our parents had asked at any point during the nearly two decades before we innocently packed up our torn Levi’s and White Stripes CDs and headed off to study at one of the most expensive universities, in one of the most expensive Canadian cities, where we would spend the next few years studying and accumulating tens of thousands of dollars in student loan debt. Those days when you worked part-time making less money than you spent on textbooks and that daily cup of Starbucks, which you couldn’t afford but were able to rationalize because it gave you complimentary access to Wi-Fi. Some of us lived off campus. Some of us daydreamed about what we might eat if we had one of those pre-paid meal plans. And once it was all over, once convocation was behind us and the very first student loan payment was processed at the height of an unexpected recession when employment opportunities were scarce, some of us thought the exact same thing: Man, I wish I had an RESP.

Don’t get me wrong. A university education is an incredible opportunity that very few people are lucky enough to get—even despite the substantial burden of a few years of accumulated student loan debt weighing down on you the moment you graduate. Education is an investment. Investing in your own education is one of the most valuable things you can do, both for your career and your overall experience of life. It’s something that has a different kind of value than just the monetary one we put on it—which, I’ll remind you, can be in the tens of thousands.

That’s why financial service providers know that in order to help their customers and members plan for the future, a Registered Education Savings Plan is an absolute must.

How Does an RESP Work?

When it comes to investing, it’s typically something you do for yourself. That’s not exactly the case with a Registered Education Savings Plan (RESP). RESPs are specialized regulated investment products that were created by the government of Canada in 1998 to help Canadians save for a child’s future education. Parents aren’t the only people who can open an RESP today. Anyone can open an RESP for a child, including parents, guardians, grandparents, relatives, friends, friends of friends, or virtually anyone else you ever met throughout your childhood—a little detail that might make this a little harder to process for those of us that never had an RESP.

(Sigh.)

There are a number of benefits to opening an RESP. The big one here is the tax break these programs offer. Your money grows tax-free while it’s in an RESP. On top of that, you also don’t get a tax deduction for the money you put into it. And when it finally comes time for your little bundle of joy to head off to college or university and take money out of the RESP in order to pay for his or her education, the money is paid out to the student in the form of a taxable Educational Assistance Payments. Fortunately, since most students have little or no income, the money is typically withdrawn tax-free, anyway.

What’s the Canada Education Savings Grant (CESG)?

The second major benefit here is that the government contributes money to your RESP, too. I’m talking about free money here! Not for those of you without an RESP—unfortunately, you guys still get nothing toward your future—but for those of you with people already investing in your future, the government is going to give you even more money! (I don’t make the rules here.) This free money comes in the form of the Canada Education Savings Grant (CESG).

What is the CESG? Every year, the federal government’s Canada Education Savings Grant provides RESP holders with an additional 20 percent of their RESP contributions up to a maximum of $2,500. That means you could get an additional $500 every year, if you invest the maximum of $2,500 into an RESP. How do you take advantage of the CESG? Once you fill out the initial application with an RESP promotor, the eligible CESG amount is automatically deposited into the RESP every year depending on the plan’s contributions. It’s that easy. In addition to its annual maximum contribution, the CESG also has a $7,200 lifetime maximum.

Children from low-income or middle-income families could receive Additional CESG. This amount is based on a family’s annual income and provides RESP holders with an additional 10 – 20 percent of the first $500 contributed to an RESP each year. That’s an additional $50 to $100 based on income brackets published by the federal government each year. Income brackets for Additional CESG for qualifying families are updated annually.

That was a lot of information, so here’s a quick breakdown of the CESG:

• Beneficiaries receive 20% of annual contributions up to an annual maximum of $500 each year for each beneficiary
• Maximum contribution amount is $7,200
• Beneficiaries from low-income and middle-income families could receive Additional CESG of 10% – 20% of the first $500 contribution per year based on family income

Three Types of RESPs

It’s important to know what happens with your money if a child decides that a higher education just isn’t their thing. You do have a couple of options. You can leave the money there for up to

36 years, meaning you probably have some extra time to state your case for quality education. If that ship has sailed, however, you can transfer that money to a sibling or completely give up on the whole parenting advice thing and transfer that money into your very own RRSP tax-free for retirement. (Speaking of ships, Hello, new sailboat!) You should know that if an RESP is closed and not used for education, any CESG amounts the RESP accumulated over the years must be repaid.

There are three different types of RESPs:

• Individual RESPs | These RESPs are the ones we’ve covered here. They can be opened by anyone you’ve ever met in your life, remember?
• Family RESPs | Family RESPs are great options for when you don’t want to put your money on any one given child, and you’re just kind of hoping one of your small little will use the money. Family RESPs can have multiple beneficiaries, as long as they’re related to you.
• Group RESPs | Group RESPs are a little different. These plans are for one child only, and the child doesn’t have to be related to you. Depending on the plan provider, you may be required to make contributions at regular intervals, as well. This is how it works: Your money is pooled with other investors and the amount of money your child gets will depend on how the plan dealer invested the money and how many students are paying for education that year. Always make sure you understand how your group plan works.

RESPs have no annual contribution limit, but a lifetime contribution limit of $50,000. And if you didn’t have an RESP but still went off to university in Toronto during the early 2000s, there’s a good chance that’s a number you’ve seen before.

For details on how to apply for a Canada Education Savings Grant (CESG), visit https://www.canada.ca/en/services/benefits/education/education-savings/savings-grant/before-application.html

Sources: https://www.canada.ca/en/services/benefits/education/education-savings/savings-grant/amount.html (Retrieved September 9, 2020)

https://www.agf.com/ca/en/insights/personal-finance/articles/article-resp-additional-cesg-en.jsp (Retrieved September 9, 2020)

https://www.canada.ca/en/employment-social-development/services/student-financial-aid/education-savings/resp/resp-promoters/bulletin/notice-2018-798.html (Retrieved September 10, 2020)

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This week was supposed to be different. I had plans. I was supposed to be researching the roots of consumer-directed finance in Europe and taking a close look at the regulations paving the way for open banking in the United Kingdom. Enthralling, right? I was reading news articles, downloading documents, and combing through any information I could find about the origins of the revised Payment Services Directive, known as the PSD2, that’s aimed to promote the development of innovative online and mobile payments through the use of open banking technology. The thing about researching regulatory changes in the financial industry is that you quickly find yourself climbing backwards from one regulation to another. You discover that this regulation spawned that one, which is related to another earlier one—in this case, the Capital Requirements Directive. These regulations are all linked in a way, like a web of entangled red tape. The PSD2 is what I was supposed to be writing about. But that didn’t happen. Instead, I stumbled across a TechCrunch article related to the disruptive U.K. challenger bank Monzo, and I found myself focusing on disruption and the role it plays during the pandemic.

I didn’t do my job. The PSD2 post can wait for another day.

If you’ve read anything about open banking, you’ve heard of Monzo. Monzo was one of the first app-based challenger banks in the U.K. to compete against Europe’s big banks and challenge the traditional banking system—and it is one of the first to find huge success. With nearly 5 million customers today, the startup originally launched only 6 years ago, piggybacking on another financial institution’s banking license and card processor in order to offer pre-paid cards. At the time of launch, it’s reported Monzo only had an API that could be used to move money around, a little more than a dozen demo cards for a hackathon, and a waitlist of developers.

Since 2015, Monzo has scaled, experiencing exponential growth and acquiring its own banking license to become a fully online bank—no small feat in Europe and still a painstaking process that Monzo co-founder, Tom Blomfield, claims took nearly two-and-a-half years to achieve. Today, Monzo stands as a symbol of innovative disruption in financial services, a beacon for aspiring tech entrepreneurs and financial startups both in the U.K. and here in Canada.

Although Monzo has been a leader of innovative disruption in financial services, the disruption that they’ve experienced this past week is not the one coined by Harvard Professor Clayton Christensen. There’s another form of disruption that often goes unnoticed, and this week Monza co-founder, Tom Blomfield, spoke about it openly as he announced his intended departure from the challenger bank at the end of this month, saying, “I’m very happy to talk about what’s gone on with me because I don’t think people do it enough.”

And he’s right. That’s why I’ve shelved the post I was supposed to write this week in order to share his thoughts here.

Here’s Tom Blomfield speaking with TechCrunch:

“I think [for] a lot of people in the world — and you and I have spoken about this — going through a pandemic, going through a lockdown and the isolation involved in that has an impact on people’s mental health,” says Blomfield. “I don’t think I was any different, so I was really struggling. I had a really, really supportive exec team around me and a really supportive set of investors on board and I was really grateful that when I put my hand up and said, ‘I need help,’ they were super receptive to that.”

Blomfield’s departure from Monzo is a reminder that the pandemic and the subsequent lockdowns don’t just affect our industry in apparent ways that can be measured in numbers and rounds of funding. Our current circumstances can introduce different kinds of human pressures that can’t be measured, ones that play a vital role in the mental health of both our people and our leaders.

Like the invisible virus that keeps us locked away and apart from one another, mental health issues can be hard for us to see. So, stop. Take a moment. Step away from your work—hell, maybe it won’t get done today. Remember that we’re living under different pressures. And don’t be afraid to take Blomfield’s lead and speak up when you need help.

Open banking is here today, and it will still be here tomorrow.

We’ll write about it then.

Sources: https://techcrunch.com/2021/01/20/enjoying-life-again/ (Retrieved January 22, 2021)
https://monzo.com/ (Retrieved January 22, 2021)
https://stripe.com/en-ca/atlas/guides/ama-tom-blomfield (Retrieved January 22, 2021)

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Neo is one of those word forms that acts as a kind of Game Genie to other words. If you’re missing the reference here, let me help. Game Genie was a popular line of videogame cheat cartridges from the 1990s that you would attach to other videogames. It allowed users to modify a pre-existing game, manipulate elements of it, and access unused functions. You popped Game Genie onto a Nintendo cartridge, put the combined cartridges into your console, and your character suddenly had infinite lives. The Game Genie basically allowed users to cheat. That’s not the point. The point is, we use the word neo like that. We plug it onto other English words that already exist on their own, and it helps us manipulate those words—it lets us modify them. It helps us mean something different and express new ideas by leveraging something familiar.

Neo is a linguistic element called a combining form. It’s often used in combination with other words to form a word all on its own, typically as a prefix. Words like neobank—an increasingly familiar word in the financial services lexicon that has really only been in existence for a couple of years, having been coined sometime around 2017 from what I can tell. We’re familiar enough with how neo is used. We have neoclassical and neotraditional and neoliberal. We throw neo in front of familiar terms to show new-ness of something or a modification of an existing thing—a revival of an old idea combined with a new idea.

See where I’m going here?

Do you know what the first cars were called? I’m not going to waste your time talking about car-things—this really is about neobanks—but I want to illustrate an important point about technology. The first cars were called horseless carriages. Prior to the invention of the motorcar, carriages were pulled by horses. So, when the first motorcars rolled into existence, the term “horseless carriage” was a simple way to express the idea of this new technology by leveraging something that was familiar. We could have called them neohorses, but we didn’t, and in the 19th century “horseless carriages” was ultimately the term that stuck. The first horseless carriages resembled regular horse-drawn carriages at first, but it wasn’t for long, and the horseless carriage was quickly modified and amplified to become what we now know as a car.

My point here is rooted in Marshall McLuhan’s theories in Understanding Media, where the media theorist writes, “every innovation must pass through a primary phase in which the new effect is secured by the old method, amplified or modified by some new feature” (323). Neobanks are in a horseless carriage phase. They do what banks do, the same way that the horseless carriage did what horses do. Banks are familiar, so we call these new things neobanks
because it helps us express what they do. They’re like banks—but modified. And it won’t be long until what makes them different redefines what they really are.

What’s a Neobank?

A neobank is a new type of digital bank that operates exclusively online or through a mobile app. Focusing on tech-savvy consumers that prefer the branchless, app-based banking model, neobanks typically don’t hold a banking license on their own. Instead, they partner with a licensed bank and build their own modern API-driven platforms that integrate with the traditional financial institution’s existing infrastructure. This unique approach allows these emerging financial technology firms to offer traditional banking products and services without the timely and expensive process of becoming a full Schedule I bank.

This unique approach has a number of benefits. While partnering with an existing licensed bank allows neobanks to get to market quicker and with considerably less capital, it also allows them to defer some of the complex regulatory and legal obstacles to the licensed bank. With some of the heavy lifting left to the traditional banks, neobanks are able to focus on building their brand and developing the one area of their business that really sets them apart—designing intuitive, customer-centric mobile banking experiences for the app generation.

Neobanks are just one of the new players in the evolving open banking ecosystem. Typically built on a Banking as a Service (BaaS) platform, neobanks often occupy the top two layers of a typical BaaS technology stack, leveraging APIs and sleek design to provide as-a-service banking technology, as well as the banking services, user interface, and brand experience. With their digital-only approach, neobanks can avoid many of the costs associated with operating traditional brick-and-mortar banks, allowing them to offer higher interest rates on basic banking products like chequing and savings accounts. In addition to deposit accounts, neobanks may also offer payment solutions, loans and mortgages, and money management features.

Over the past few years, we’ve seen an emergence of fintech companies that are focused on competing against the traditional banks—these include neobanks, white-label banks, and challenger banks. We continue to modify the word bank to try to express that this new thing—this new idea, this new technology—is something different, and we grasp at what’s familiar in order to try to explain it. We know it can change things, but we don’t quite understand how yet.

So, what’s the difference between all these new banks, anyway? Often their differences are marginal, and it’s easy to mistake one for another because they’re really not that different. Neobanks are really just white-label banks that are typically built on a Banking as a Service platform; whereas, challenger banks are well-established neobanks that may hold their own banking license of their own. If a neobank is successful enough to challenge the traditional banks and compete for their customers, you wouldn’t be wrong to call it a challenger bank—it’s just the natural progression.

When a neobank gains enough momentum and a large enough client base that it begins to compete directly with traditional banks, you have a challenger bank. And if that neobank is successful enough, it may decide to acquire its own banking license—not necessarily through the usual application process, but by acquiring a bank that already holds one.

At some point a neobank becomes a challenger bank. But what happens when that challenger bank—and many others just like it—begins to displace the traditional banks as our preferred method of banking?
For now, we’ll call them neobanks.

But these horseless carriages will look like cars in no time.

https://en.wikipedia.org/wiki/Horseless_carriage (Retrieved December 2, 2020)

https://robynbacken.com/text/nw_research.pdf (Retrieved December 2, 2020)

https://en.wikipedia.org/wiki/Neobank (Retrieved December 2, 2020)

https://www.forbes.com/sites/jeffkauflin/2019/11/04/dawn-of-the-neobank-the-fintechs-trying-to-kill-the-corner-bank/?sh=4be2c670b0f6 (Retrieved December 2, 2020)

https://designopendata.files.wordpress.com/2014/05/understanding-media-mcluhan.pdf (Retrieved December 2, 2020)

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There are all sorts of names for types of banks these days. We have challenger banks and neobanks and Banking as Service banks or BaaS banks. It’s not like it used to be when a bank was just a bank and things were black and white. No, things are changing! Banking is changing. Just like creative like-minded millennials choosing unconventional names for their offspring, it seems banking industry leaders are taking a similar approach to the finance industry, proving they’re just as tired of tradition as those of us raised in the 1980s and 1990s. I’m not criticizing the changing of these things, either. In fact, just the opposite—I’m on board with it! I gave my own kids crazy names they have to deal with. The kind of names that make grandparents roll their eyes and bite their tongues and share their hushed disapproval with friends at curling bonspiels and on the sidelines of pickleball courts. “I don’t know where they got that name from,” the grandparents say. “It sure is different.”

And they’re right! It is different. That’s entirely the point. It’s different and it’s deliberately different because so many of us are tired of the same. We’ve had the same for too long, and we know things could be better. For both millennial parents and banking leaders alike, it’s not about the name of the thing—it’s about what the name represents. It’s about the approach. It’s about being different, and not for the sake of being different but for the sake of influencing change. It’s about respectfully acknowledging the way things have been done and saying, it’s time to do something different. It’s time to be better. The logic goes like this: Tradition got us here, here is problematic, and it’s time for a change.

Let’s look at the Canadian banking industry. It’s been dominated by the same big banks that have been around for over 150 years! Some emerging banks look at that competition, and what do they say about it?

“We’re not a bank,” the emerging bank says. “We’re a challenger bank.”

And the much older traditional big bank bites its tongue and takes a seat on the bench. “I don’t know where they got that name from,” the big bank says to its fellow big bank pickleball friend. “It sure is different.”

And the challenger bank says “You’re right, big bank. We are different.”

And things start to change.

What’s a Challenger Bank?

In Canada, a challenger bank is a relatively new type of digital bank that competes directly with the big banks, operating without brick-and-mortar branches and offering banking services through a mobile app or website. Challenger banks are typically built on Banking as a Service (BaaS) technology platforms. This approach allows emerging challenger banks to partner with a pre-existing Schedule I bank in order to bypass the timely application process and regulatory obstacles associated with getting a full Schedule I banking license.

By building modern API-driven platforms that connect with existing banking systems, challenger banks can offer their own banking services and focus on more important areas of their solution, like their technology stack, the mobile user experience, and their brand. Although most challenger banks are designed on BaaS solutions, some may acquire a full Schedule I banking license. Ultimately, it’s their branchless, mobile-based banking strategy that makes challenger banks different and sets them apart.

The digital-only approach allows challenger banks to cut out the costs associated with the traditional brick-and-mortar banking model, allowing them to pass some of those cost-savings along to their customers—which they often do in the form of higher interest savings accounts. The ability to offer higher interest rates on savings accounts provides emerging challenger banks with an edge in the market, allowing them to compete alongside the big banks.

How competitive are challenger banks in Canada? Well, one Canadian challenger bank was recently reported offering interest rates on savings accounts that were 40 times higher than the big banks. You read that right: 40 times! On top of that, the same challenger bank reported record quarterly earnings just this month. (I should probably remind you that that’s also in the middle of a pandemic.) With those two figures alone, it’s undeniable that there’s a place in the market for these institutions to not just succeed but to thrive and change the way people experience banking.

EQ Bank is a great example of a challenger bank in Canada. The digital bank, officially launched in 2016, holds a full Schedule I banking license and currently boasts high-interest savings accounts that offer customers up to 30 times more interest than other banks. For anyone with any amount of money in their savings accounts, that’s kind of a big deal, and for many consumers, that also might be reason enough to make the switch from a traditional big bank.

Many more challenger banks are emerging in Canada with their own banking service offerings built as a service on top of existing banking infrastructure. Offering banking services that range from investment advisory and savings accounts to prepaid and credit card programs and more, these digital banks include brands like Koho, Wealthsimple, Neo Financial, and Stack.

A Brief History of Challenger Banks

Challenger banks are still a new concept here in Canada, having gained much of their traction in the United Kingdom over the past several years. But the origin of the challenger bank itself really dates back to 2008—and that’s being generous because it would be several years before these banks really started to emerge.

Following the 2008 financial crisis, regulators in the UK began to see how more banks could create diversification and lead to enhanced market stability, and they began to encourage new competition in the financial marketplace. As a result, regulatory changes took effect that included the implementation of a new regulatory framework for the financial system, along with the creation of a new bank start-up unit that provided support for constituents interested in setting up a new bank in the UK.

Banks that began to emerge from the new framework have leveraged app-based banking technology or Banking as a Service (BaaS) platforms to build disruptive digital banks with a focus on good design and a belief that customers are happy to conduct all of their banking entirely online. These UK challenger banks include Monzo, Starling Bank, and Revolut, which is currently building a waitlist for its Canadian launch date.

In Canada, challenger banks are focusing on this same digital-only approach in order to compete with the big banks. As a result, the name challenger bank has been quietly adopted here.

Why Are Challenger Banks Important?

The focus on disrupting the traditional banking model with exceptional digital user experiences and limiting banking services to the one place where people want to bank—on their phone—is the primary drive behind challenger banks.

Challenger banks acknowledge the 100-plus-year-old competitors they’re up against, and they’re creating convincing solutions to compete and show the industry that the banking experience can be different. They’re offering better incentives for personal savings, often with exponentially higher interest rates.

Most importantly, they’re showing consumers and the industry that we don’t have to keep doing what we’re doing just because that’s how it’s been done.

We’re tired of tradition. We’re ready for change. Sure, we can look at banking and continue to bank the way we have always banked. It works. Is working really all we care about? What if we looked at banking as a thing that can actually improve our lives?

Things can be different.

Sources:

https://www.investopedia.com/terms/h/high-street-bank.asp (Retrieved November 12, 2020)

https://en.wikipedia.org/wiki/Challenger_bank (Retrieved November 12, 2020)

https://www.newswire.ca/news-releases/equitable-bank-at-50-canada-s-challenger-bank-tm-celebrates-milestone-with-a-view-to-the-future-853523414.html (Retrieved November 12, 2020)

https://www.moneysense.ca/save/eq-bank-review/#:~:text=EQ%20Bank’s%20current%20interest%20rate,other%20online%20and%20traditional%20banks. (Retrieved November 12, 2020)

https://www.statista.com/topics/6290/challenger-banks-in-the-uk/ (Retrieved November 12)

https://www.bankofengland.co.uk/prudential-regulation/new-bank-start-up-unit (Retrieved November 13)

https://www.goodhousekeeping.com/uk/consumer-advice/money/a29305253/challenger-banks/ (Retrieved November 13, 2020)

https://www.hydrogenplatform.com/blog/popular-challenger-banks-in-canada

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No, it’s not a freshwater fish—you’re thinking bass. It’s OK, you’ve probably been locked inside for months like the rest of us, so it’s perfectly fine if you’d rather fantasize about fishing right now. You know what, let me help: Here’s a moss-covered cabin deep in the woods, the smell of pine needles, the distant call of a loon, the lap of the water along the side of a canoe as you cast your line. No, really. Take your time. When you’re ready, we’ll explore what BaaS really means by taking a close look at how this financial services model fits into the world of consumer-directed finance, and what it means for financial institutions, fintechs, and non-bank businesses. When we’re done, you’ll have a better understanding of the technology and the incredible opportunities that the Banking as a Service model offers—and you’ll be free to head out to your shed or garage and clean off your rod and tackle box.

Banking as a Service (BaaS) Is All about Implementing Banking Services into Non-Bank Businesses

So, what is BaaS? Let’s keep this nice and simple. Banking as a Service (BaaS) is an innovative banking model that integrates full banking processes directly into the customer experience of non-bank businesses.

These banking processes can include everything from creating loans or processing payments to opening full retail deposit accounts with debit cards. The model allows startups, fintechs, and other non-bank businesses—really, any brand at all—to build innovative financial services solutions into their own customer experiences using modern API-driven platforms.

Now, this is huge. Ultimately, the BaaS model means you no longer have to be a bank in order to offer traditional banking services. This doesn’t mean you don’t have to worry about security or compliance or regulation or anti-money laundering or all of those complex legal elements that banks have to worry about. It just means that you’re going to need a partner that will take care of all that for you—and that partner must be a federally regulated bank with a banking license.

How Does Banking as a Service (BaaS) Work?

The best way to think about BaaS is to visualize the final banking services solution as a three-layered technology stack. You have non-bank brands on top of fintechs on top of financial institutions—and a whole lot of API-driven technology seamlessly and securely linking everything together.

FS:11, a London-based firm focused on delivering next-generation financial solutions propositions for the financial industry, does an incredible job capturing a modular BaaS tech stack in their report, Banking as a Service: Reimagining Financial Services with Modular Banking. In it, FS:11 outlines a discernable stack of financial services offerings categorizing the banking stack into nine different areas of specialization. They also divide the stack among three types of players to create a cohesive view of how a BaaS solution is built: brands, fintech service providers, and licensed banks.

Each player provides one or more pieces of the overall solution or BaaS stack.

The BaaS Stack: Brands, Fintech Service Providers, and Licensed Banks

The top layer of the BaaS stack belongs to brands. Brands control the customer experience. This is typically the user interface and the digital elements that create the overall customer experience for the end consumer. Brands are the non-banks that provision traditional banking processes into their customer experiences. When a consumer engages with a BaaS integrated financial solution in their customer journey, this is often the only brand the consumer will see. This level of integration gives brands complete control over the customer experience—everything from product selection to financing and even payment. Owning the entire customer journey gives brands more opportunity to promote brand engagement, reward customer loyalty, and reinforce brand recognition. It’s a strategy that can open up entirely new revenue streams for brands and turn a single sale of a product into multiple financial services-based touchpoints that could span years.

The middle players in a BaaS stack are fintech service providers that offer specialized financial services solutions to brands. This is the as-a-service layer of the stack. Fintech service providers typically don’t hold a banking license themselves. Instead, they offer their as-a-service banking solutions to brands by using modern APIs that access an actual banking system at a partner’s secure and regulated infrastructure—the licensed bank. These fintechs are often specialized in one area of traditional banking, focusing on payments or loans or even retail accounts—really, any number of the traditional financial services that banks offer.

Think of the traditional vertically integrated financial products and services that banks are known for: retail and deposit accounts, investments, loans, residential mortgages—the list goes on. Fintech service providers essentially disassemble the vertical integration of financial products and solutions in order to target and specializing in one or more particular areas.

The third player, and the foundation of the BaaS stack, is the financial institution. The financial institution holds the banking license. They take care of the regulatory and legal obstacles, while providing access to their infrastructure and legacy banking systems through the use of open banking APIs. Their systems communicate with fintechs and brands to create users and products and allow end customers to access banking services directly through a brand’s website or mobile app. Financial institutions are a major piece of the BaaS stack and partnering to create BaaS solutions is one way for them to offer their services and solutions using modern platforms.

Why Is BaaS Important?

Is BaaS disruptive? Absolutely it’s disruptive! Banking as a Service has the potential to completely change the way consumers borrow and pay and experience financial services. It’s ironic because disruptive is a terrible term for an integrated technology solution that effectively creates customer experiences that are anything but disruptive. The BaaS model places the perfect financial solutions at the perfect point in the customer journey, creating a seamless experience for virtually any brand.

Banking as a Service revolutionizes the way consumers experience banking. A key component of consumer-directed finance or open banking, BaaS creates opportunities for everyone, including brands, fintechs, banks, and consumers.

For brands, BaaS provides an opportunity to create new revenue streams and streamlined customer experiences. It creates opportunities for brands to increase brand engagement and recognition and provides new ways to earn and reward customer loyalty. For fintech service providers, BaaS lowers the threshold for new players into the banking industry. It can take millions of dollars and years of work to acquire a banking license in Canada. With BaaS, innovative fintechs can consider partnerships with banks in order to offer new, highly specialized financial solutions. For banks, BaaS creates seamless modern banking experiences, connecting legacy systems to modern API-driven platforms to offer the right products at the right time in a brand’s customer journey. And what about consumers? For consumers, just accessing financial services becomes easier—it’s right there when you need it. And by making it easier to choose between financial providers, BaaS crates more competition between industry players, which has the potential to drives down the cost of financial services and products. This is customer-centric banking.

The entire BaaS model creates a whole new financial ecosystem teaming with fish new ideas and fish ways for consumers to experience banking.

OK, OK. I get it. You get it. Just go grab your rod.

Sources:

https://info.11fs.com/hubfs/Banking%20as%20a%20Service_reimagining%20financial%20services%20with%20modular%20banking.pdf (Retrieved September 25, 2020)

https://www.solarisbank.com/blog/what-the-hell-is-banking-as-a-service-and-what-is-it-not/ (Retrieved September 17, 2020)

https://www.businessinsider.com/banking-as-a-service-platform-providers#:~:text=a%20client%20here.-,Banking%2Das%2Da%2DService%20(BaaS)%20is%20a,to%20enhance%20their%20own%20services.&text=Pure%20BaaS%20Providers,Retail%20Banks%20w%2F%20BaaS%20Services (Retrieved September 24, 2020)

https://www.businessinsider.com/private-white-label-banking#:~:text=White%20label%20banking%20is%20another,financial%20products%20with%20existing%20infrastructure (Retrieved September 28, 2020)

Learn about the difference between Open Banking and BaaS here.

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