In December 2020, ICTC’s Mairead Matthews and Rosina Hamoni sat down (virtually) with Hanna Zaidi, Director of Regulatory R&D at Wealthsimple to talk about Wealthsimple’s unique place in the financial services industry, common challenges in the Canadian fintech industry, and the state of open banking (the practice of sharing financial information electronically and securely under conditions approved by customers to more easily find products that suit their needs).

Both fintech and open banking have grown significantly over the past few years, beginning in 2016, with the new data-transfer provisions provided by the European General Data Protection Regulations (GDPR) and continuing with the high-profile launch of open banking in the European Union and United Kingdom. Since then, a number of market and government-led open banking initiatives have taken place elsewhere around the world, in places like Singapore, Australia, and Hong Kong. Here in Canada, an open banking consultation and review took place in 2019 and 2020, and most recently, the federal government introduced new legislation to establish data mobility provisions similar to that of the GDPR.

At the same time, the global fintech market has grown rapidly, expanding into new technology areas like artificial intelligence (AI), application programming interfaces (APIs), blockchain and distributed computing, and digital identity. New research by The World Bank highlights that the “global fintech industry has been largely resilient in spite of COVID-19,” and similar reports point to growing adoption of digital financial services like digital payments and e-Commerce solutions among Canadians.

Canada has traditionally lagged other countries with respect to fintech adoption, and while there is evidence to suggest that fintech adoption was already increasing in Canada prior to the pandemic, new research shows that only 11% of Canadians had met with a bank advisor via video call prior to COVID-19. Alternatively, since the pandemic, 44% say they are willing to continue using video calls to meet with bank advisors once branches reopen, and 29% say they actually prefer video. Given these consumer trends and the possibility of new data mobility legislation, what does Canada’s fintech and open banking future look like? What remaining challenges does it face? Read on to find out.

Mairead: To begin, do you mind telling us a bit more about Wealthsimple and your role at the company?

Hanna: Wealthsimple is a financial services company. We use technology to make smart, simple, and affordable financial products available to everyone, regardless of their age, net-worth, background, or education. As the Director of Regulatory Operations, my role at Wealthsimple is to manage regulatory stakeholder relationships and ensure that our business, products, and services comply with all relevant regulations.

Rosina: What is Wealthsimple’s value offering, and how has it changed over time?

Hanna: When the company was founded six years ago, we started with automated investing, but that is only one piece of your financial picture. When you look at the Canadian financial landscape, there’s no shortage of products and services that need simplifying. We currently offer automated investing, commission-free trading, cryptocurrency trading, a saving and spending account, and tax filing software. But we’re really just getting started.

Mairead: How does Wealthsimple and its services differ from what a bank does?

Hanna: We offer many of the services that a bank does, but to be clear we are not a bank and work with a number of third-party providers to make them happen and the way we offer them is quite different. For us, it all starts with the client and what they need, and then we build a suite of products around that. For example, we recently added a tax filing software to our product lineup; this isn’t an area banks have traditionally been involved in, but when you think of it from the client’s perspective, it makes a lot of sense to offer tax filing alongside saving and investing.

Rosina: How do your services differ between Canada and a country like the UK, where open banking is in place?

Hanna: Europe is leading in the adoption of open banking that is supported by regulators, and as a result of that we’ve been able to make our offering in the UK more accessible for consumers through API partnerships with banks. For example, our partnership with Starling Bank lets clients sign up through their bank and get invested with us instantly.

Mairead: Wealthsimple’s CEO, Mike Katchen, commented on open banking in a blog post last year, saying that Canada could benefit from open banking — specifically the information-sharing component. How would increased information-sharing impact your company and other companies like yours, and the services you provide?

Hanna: A properly implemented Open Banking framework would allow for direct API (Application Programming Interface, a software intermediary that allows two applications to talk to each) access to banks and, if a consumer chooses to share their data, then it would be done so securely and only under the conditions that the consumer approves of. For Wealthsimple and other fintechs in the space, open banking would allow us to remove third parties that we currently rely on for client data and, as a result, create better products with richer data and information. For the consumer, it would empower them to make more informed choices with their own data. It would also increase competition, which would lower fees and make financial products and services more accessible.

Rosina: The recently introduced Digital Charter Implementation Act includes provisions related to data mobility, but what would data mobility mean for open banking in Canada?

Hanna: This means that consumers have a data right to their information and, if the Bill is passed, this will lay the foundation for Open Banking, similar to what General Data Protection Regulation (GDPR) did in Europe before open banking came into effect.

Mairead: The number of Canadian fintech companies has jumped in recent years, including new ventures that incorporate emerging tech like AI. What role does AI play in your company and financial services generally?

Hanna: We use AI to automate manual services like account verification. More broadly speaking, the use of AI in financial services allows companies to cut operational costs that are often passed onto the consumer. One of our value propositions is that our services are affordable and accessible, which is made possible through the use of technology and AI to reduce overhead. Because of this, the fees we do charge translate into real value to the client, like access to honest financial advice whenever they need it.

Rosina: Interestingly, a 2019 report by Ernst & Young, found that Canadians are among the slowest adopters of fintech products and services in the world — in fact, 14% lower than the global average. Do you think this will change going forward?

Hanna: Our financial services industry is behind and, as a result, Canadians aren’t used to looking for something better because competition hasn’t [apply] there. The banks essentially all offer the same suite of products and services — all of which are opaque, inaccessible, and expensive. But 2020 has been a really powerful year for adoption in digital financial services. The pandemic has reshaped how we think about and approach financial services. People are uncomfortable with the idea of going to a bank branch these days, which has led them to turn to digital banking alternatives. Looking forward, the ease of digital banking and investing will replace a lot of the physical components that are unnecessarily burdensome, like having to go into a branch to sign a form or cancel a recurring transfer.

Rosina: What would you say are Canada’s greatest strengths when it comes to fintech and developing fintech products and services?

Hanna: Canada has a rapidly evolving tech ecosystem that is attracting global interest and top talent, which is extremely important in building a fintech. Toronto and the surrounding area are also home to some of the world’s most notable advancements in AI, which directly translates into more innovative products and services. Lastly, Canada offers a unique lens for improving customer experiences in the financial services industry. Like I mentioned before, the industry is monopolized by big banks, and products are notoriously expensive and opaque. There is no shortage of challenges to solve when building smart financial products and services.

Mairead: Conversely, could you point to any challenges that are specifically Canadian, from the perspective of startups and companies operating in the fintech space that are trying to grow, scale, or even just get off the ground?

Hanna: Unlike other markets around the world, the big banks — and their decades of experience — have a stronghold on the industry. In other countries, the industry is much more open to competition, which makes getting a new fintech off the ground easier to some extent. In contrast, the spending power behind these big banks makes it challenging to fight for consumer market share and trust.

Fintechs in Canada have challenges in being able to access banking and financial services to run their businesses. The opportunities for access are very limited, and the options that are available are not competitive, which lead to high prices, poor technology options and limited selection in services. Additionally, given the uncertain regulatory environment around payment modernization and the Real-time Rails (RTR is a real-time payments system that includes the legal/business framework and technology infrastructure for the exchange, clearing, and settlement of real-time, account-to-account credit transfers), fintechs have no guidance or visibility on what the future of payments infrastructure will look like, so they can’t plan accordingly. The Competition Bureau in 2017 released a report that highlights the changes fintechs face when it comes to accessing payments infrastructure. Although there has been consultations with the hopes of improving things, no changes or progress has been made on any of the items that were highlighted.

This is problematic because the longer it takes to make progress on these things, the longer it takes for companies like Wealthsimple to grow and bring along a whole new generation of customers and financial services products for Canada.

Whether due to pre-existing trends or the recent impact of the COVID-19 pandemic, it is clear that an increasing number of Canadians are getting on board with digital financial services. Despite increased consumer demand for digital products and services, Canadian fintech companies face significant industry challenges: namely, data mobility regulations that lag the global standard, obstructed market access and limited competition, and uncertainty regarding future standards like digital payments. Recently introduced privacy legislation may help to address some of these challenges. For example, there has been recent interest from the federal government in open banking. However, considerable work is still needed for Canada’s financial services industry to catch up with other global leaders.

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Hanna Zaidi

Hanna Zaidi is a compliance strategist who has worked for a wide range of financial institutions from big banks to early stage startups. Hanna has also advised early stage fintechs on market strategies and product compliance. Hanna is currently at Wealthsimple and has supported the launch of new products such as Wealthsimple Cash, a hybrid high interest saving and spending account, and Wealthsimple Crypto, the first securities dealer in North America approved to buy/sell and hold crypto for clients. Hanna is a board member at Open Banking Initiative Canada (OBIC) and represents the fintech voice in advocating for an Open Banking Framework in Canada.