Like many other parts of our lives, banking is becoming increasingly digital. Canada has a number of new digital banks, also called challenger banks, promising to revolutionize the financial industry through the use of world-class technology and digital services. But are they worth the hype?
Learn about some of the new banks on the block and what makes them different.
Like the name suggests, a digital bank operates digitally, usually from an app or website, rather than from a physical branch or office. A digital bank is a fairly loose term. The correct industry name for these banks is a challenger bank.
A challenger bank is a completely digital bank that doesn’t use any existing legacy systems to operate. This means the bank doesn’t use any physical infrastructure or digital operating systems that are already being used by existing financial institutions. The technology used by these fully digital banks is developed from scratch. They get their name from their roles as challengers to traditional banks, especially the big 5 Canadian banks..
Compare digital banks in Canada
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What other digital banks exist in Canada
There are a number of digital banks already operating in Canada or about to launch:
Stack. This challenger bank is Toronto-based. It offers no fees and a pre-paid Mastercard that can be instantly loaded with cash at over 10,000 locations across Canada.
Revolut. This UK-based bank was created with travelers in mind, offering low fees for international purchases, withdrawals and money transfers. Revolut’s Canadian launch date hasn’t been announced yet, but you can sign up for their waitlist online.
Impak Finance. Based in Quebec, this digital bank’s focus is on ethical banking and social responsibility.
Quest Bank. Based in Toronto, Quest Bank is the banking division of online brokerage Questrade. Their application for a banking license is currently being reviewed (as of November 2019).
NorthOne Business Banking. This challenger bank is based in the US but is headquartered in Toronto. Its focus is small businesses and startups.
Motusbank. Newly opened in 2019, this Ontario-based bank is the digital banking arm of Meridian Credit Union. It is a full service bank.
ATB Brightside. This Alberta-based, mobile-first digital bank that was setup by ATB Financial.
Mogo. Based in Vancouver, Mogo offers a prepaid Visa card along with a digital bank account and other traditional financial products.
KOHO. Full-service digital based in Toronto. it also offers a prepaid VISA card with its individual and joint banking accounts.
What’s the difference between a digital bank and a traditional bank that’s available online?
Some banks could appear to be digital banks if they don’t have branches and customers use mobile banking apps to control their money. However, just because a bank doesn’t have branches and offers a range of digital products and platforms doesn’t mean it’s a digital bank or a challenger bank. These online-only banks are built on existing infrastructure and closely mimic traditional banks, but true digital banks utilize new technology to create innovative banking solutions.
Must read: A bank offering Apple Pay isn’t necessarily a digital bank.
Many banks offer contactless payments via digital wallets like Apple Pay, Google Pay and Samsung Pay, but offering a digital feature doesn’t make them digital banks.
Similarly, if a bank offers a top-notch mobile banking app, internet banking services, cardless cash facilities and digital savings tools, this doesn’t automatically mean it’s a digital bank either. Remember, a 100% digital challenger bank is one that doesn’t use any existing banking systems or infrastructure.
What is app-based banking?
App-based banking is any sort of financial institution or tool that you control primarily through an app. There are several advantages to app-based banking:
Banking access in your pocket
Many companies offer 24/7 access to banking support
Instant spending notifications
Many banking apps offer ways to automatically save money
Things to know about app-based banking
Using your phone as your main point of contact with your bank can save you time and give you more control over your finances, but there are a few things to be aware of.
If you’re planning to apply for a new chequing account or credit card, your bank may pull your credit file in order to assess how likely you are to overdraw the account.
Most banks are insured by the CDIC, which means your deposit of up to $100,000 is backed by the Canadian government. Not all app-based banks have this same protection. You can view CDIC’s Members List to learn if your bank is CDIC insured.
App-based banks aren’t always able to offer the financial rewards, such as signup bonuses, that are common at many big banks. This varies by institution and is not always the case.
A benefit of an app-based bank is having full access to your account at all times. Lots of app-based banks allow you to freeze your account if you lose your card, so if you find it again you can just unfreeze the card in the app. If you forget your PIN, you may even be able to answer security questions in the app.
Not all app-based banks are banks in the traditional sense. Some banking apps work alongside your pre-existing accounts to gather all your spending data in one place, offer you insights into the way you spend your money and suggest ways to improve your finances.
Different types of app-based banking
App-based banking encompasses a lot of different financial products, including:
Digital banks. Digital banks rely on new, innovative technology and are generally app-based.
Traditional bank apps. App-based banking doesn’t only apply to challenger banks, it has also become increasingly possible to bank on your smartphone with traditional banks like the big 5.
Apps that help you save. One of the most common reasons for people heading away from traditional banks and towards app-based banking is how easy app-based banking makes it for people to track, save and manage your money at a glance.
Prepaid card apps. Some companies let you control a prepaid debit card from an app so you can track your transactions and see exactly how much money you have left.
Investment apps. Some apps let you invest in stocks from your phone so that you have more control over your finances.
Are digital banks safe?
Digital banks need to have the same banking licenses and approvals as existing Canadian banks before they’re able to offer products and services to consumers. These new banks will be regulated by the Office of the Superintendent of Financial Institutions (OSFI) and the Financial Consumer Agency of Canada (FCAC) in the same way that existing banks are regulated.
Your deposit of up to $100,000 with an Canadian Deposit Insurance Corporation (CDIC)-insured bank is protected by the Canadian government. This means if something were to happen to the bank, your money (up to this amount) would be safe. Note that some of the digital banks mentioned in this guide are not yet considered banks and haven’t yet been licensed or CDIC-insured.
How to get started with a digital bank
If you’re interested in joining one of these digital banks simply visit their website and sign up. If you want to join one of the new digital banks that have yet to open in Canada, you can join their waitlist by visiting their website. When they launch products, those on the waitlist will be the first to know and the first to receive access to these new products.
Bottom line
Digital banks are becoming more and more popular and for good reason. They often cater to specific niches and groups and they’re known for offering innovative apps. But before you ditch your current bank, take the time to read through all of the fine print to make sure the bank you’re interested in is as good as it sounds then compare digital banks to find the right one for you.
Digital banks often have multiple ways to contact customer service, including via online chat, email and phone. Check with the bank you’re interested in to find out how they handle customer support before signing up.
Overseas banks that come to Canada aren’t always able to offer the same features to Canadian users because of regulation. In some cases the bank will roll out new features as it expands, but not always. Banking regulations vary from country to country, making it difficult to offer the same features in every country.
Alison Banney is the senior banking and investments writer at Finder. She has written about finance for over five years with her work featured on sites including Yahoo Finance, Dynamic Business and Koshie's Business Builders. She has previously worked at Westpac, and has written for several other major banks including BCU, Greater Bank and Gateway Credit Union. Alison has a Bachelor of Communications from Newcastle University and a Tier 1 RG146 Generic Knowledge Certification for financial advice.
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