Can EQ Bank and Wealthsimple Compete with Canada’s Big Banks?

Challenging Canada’s concentrated banking sector is difficult, but a few challengers are making headway.

Fintechs and mid-sized institutions such as EQ Bank and Wealthsimple have introduced lower-cost options, expanded their customer bases and increased brand visibility. Rather than upending the incumbents, however, experts say many successful mid-sized players are more likely to be acquired by the major banks than to topple them.

“The Canadian banking market is not especially competitive, and I don’t expect that to change,” said Claire Célérier, Canada Research Chair in household finance at the University of Toronto’s Rotman School of Management, noting that further consolidation seems likely.

That view follows a recent wave of deals: RBC completed its $13.5-billion acquisition of HSBC Canada in March, and National Bank is in the process of buying Canadian Western Bank in a roughly $5-billion transaction.

Competition focused on account fees and services

The exit of two mid-sized competitors has left even fewer institutions with the scale to challenge the Big Six banks. Still, firms like Wealthsimple and EQ Bank are carving out niches by offering low fees and customer-friendly services.

Wealthsimple reported this week that its assets under management exceed $50 billion—more than double the amount from a year ago and roughly seven times what it managed five years ago. That growth has encouraged CEO Michael Katchen to call Wealthsimple “the first and only credible alternative to the big banks in Canada.”

Low-cost features are central to the company’s appeal: no-commission trading, competitive management fees and an expanding range of financial products aim to fill gaps in consumer choice. “When mid-range competitors disappear, the market becomes even less competitive and Canadians pay the price in fees,” Katchen said.

Where the big banks still compete

Big banks argue the sector remains intensely competitive, particularly when it comes to mortgage pricing. Still, a March estimate from consultancy North Economics suggested Canadians pay more than $7 billion a year in excess banking fees compared with similar markets such as the U.K. and Australia—places where many account services are cheaper or free.

Consumers in other countries often benefit from stronger regulatory measures that make switching banks easier. For example, regulators in some markets place responsibility on banks to transfer payment and account data to a new institution, simplifying the move for customers. That kind of frictionless switching has not yet appeared in Canada.

To address that, challenger banks are encouraging gradual switching. EQ Bank’s CEO Andrew Moor describes their approach as lowering the perceived risk: customers can open an account and keep their existing one while testing new services. EQ also incentivizes transfers of payroll to its accounts by offering higher interest rates when customers make that change, which helps retain deposits.

EQ has introduced product innovations such as a notice savings account that pays higher rates when customers agree to provide 10 or 30 days’ notice before withdrawing funds, and recently launched a bank account tailored for small businesses. Those moves have helped EQ’s assets roughly double over five years to about $54 billion.

Mixed performance among smaller banks

Growth at Wealthsimple and EQ contrasts with the slower progress of some other smaller institutions. Laurentian Bank’s assets have risen only about 7% to $47.5 billion over the same period. The bank has undertaken a turnaround program including executive changes, asset sales and restructuring, but analysts remain uncertain about its long-term competitive position.

“It’s not clear what Laurentian’s structural or competitive advantage will be once these changes are complete,” said analyst Nigel D’Souza of Veritas Corp.

Other smaller banks show modest growth: Manulife Bank has increased to roughly $30 billion (about 11% growth since 2019), and ATB Financial to around $62 billion (about 14%). Canadian Western Bank was among faster growers—up about 38% to $42.5 billion—before its pending acquisition. In the cooperative sector, Desjardins has expanded to about $444 billion, nearing National Bank’s $454 billion. By comparison, RBC remains far larger, with roughly $2.08 trillion in assets.

Structural challenges for smaller banks

Smaller and mid-sized banks face a range of structural disadvantages: higher costs to raise funds, the need to offer elevated deposit rates to attract clients, and the requirement to hold more capital because they are often perceived as less stable. Those perceptions can limit customers’ willingness to keep balances above the $100,000 federal deposit insurance limit.

Some companies have found workarounds. For example, Wealthsimple places customer cash in trust accounts across multiple banks to provide up to $500,000 in insured deposits. Still, limited branch networks, smaller economies of scale and less diversified revenue streams make it difficult for mid-sized players to gain a larger share of the market.

“Our view has always been that we’ll see more consolidation in the Canadian banking space because larger banks possess structural competitive advantages,” D’Souza said. He also noted that consolidation can reduce costs per customer and, in some cases, lead to lower fees as institutions benefit from greater economies of scale. Lending rates in Canada are already relatively competitive, he added.

Observers say this concentration is not unique to Canada. “Banking markets are becoming more concentrated in many countries,” Célérier noted. For challengers and consumers alike, the dynamic means ongoing innovation, targeted product offerings and strategic growth will determine who succeeds and who becomes an acquisition target.

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