It is rare for a major foreign bank to attempt a full entry into Canada’s retail banking market. Spain’s Banco Santander, however, is preparing to do just that. With more than 168 million customers worldwide, Santander has the scale and experience to attract account holders — and it is reportedly close to receiving the final approvals needed to broaden its footprint in Canada.
A significant international challenger could inject fresh competition into a market long dominated by a small number of large domestic banks. Still, industry observers caution that displacing entrenched incumbents will be difficult.
“You would expect the Canadian banking market to be ripe for disruption, yet it has proven remarkably resistant,” said Andrew Spence, author of the book Fleeced: Canadians versus their banks. He points out that the Canadian system generates consistently high margins, which creates a tough environment for challengers trying to gain market share.
Canadian banks posted roughly $54 billion in profits in 2024, a level of profitability that makes the country an attractive target for outside entrants. On the common industry measure of return on equity, Canadian banks have delivered results about 40% higher than U.S. peers over the past two decades, and roughly double those of many European banks. They also earn substantially more per customer: for example, Royal Bank of Canada recently reported $4.2 billion in quarterly profit on about 17 million customers, while Santander earned about $4.9 billion with a global customer base roughly ten times larger.
Part of the sector’s profitability stems from fees Canadians pay on everyday banking products. Spence has argued that those fees mean Canadians are, in effect, subsidizing the stability of their banks through higher costs on services, which diminishes some of the prestige associated with the domestic system.
Will Santander be successful in Canada?
Entering the market is one thing; attracting everyday depositors and building long-term customer relationships is another. “It’s one thing to open doors, but how do you convince people to move their deposits?” asked Michael Liquornik, president of Fin-Serv Advisors Inc. He noted Canadians already have many banking options and are often reluctant to change primary financial relationships without a compelling reason.
Santander has kept details about its Canadian strategy relatively limited and did not comment for this article. The bank is pursuing a domestic banking licence that would enable it to accept deposits and expand services beyond existing operations. In April, the finance minister approved Santander’s application in principle; the banking regulator now has up to a year from that approval to render a decision.
Industry observers expect Santander may follow a model similar to the one it has been developing in the United States: launching a no-fee, higher-interest online bank to collect deposits and support other lines of business, particularly auto lending. Santander has recently rolled out its Openbank digital offering in both the U.S. and Mexico to help fund auto loans more cheaply than wholesale funding would allow.
In Canada, Santander already operates in auto lending after acquiring Edmonton-based Carfinco in 2014 and rebranding it as Santander Consumer in 2021. That existing presence suggests Santander could pursue a deposit-gathering strategy designed to support and lower the cost of its auto-lending activities. But experts remain skeptical that a modestly better deposit rate alone will persuade many Canadians to switch their primary bank relationships.
History shows it can be done
There are precedents for foreign banks gaining traction in Canada. When ING Bank introduced no-fee online banking in 1997, it filled an unmet need and grew to about 1.8 million customers before selling its banking arm to Scotiabank in 2012. HSBC also built a meaningful franchise in Canada after entering in 1981, at one point serving nearly 800,000 clients and holding over $100 billion in assets before divesting its Canadian operations earlier in the decade.
Still, the modest size of the Canadian market and the dominance of a few large institutions — which collectively control more than 90% of assets — make expansion a strategic challenge for many international banks. “The Canadian market is a surprising move for a bank of this size,” said Johann Scholtz, an analyst covering Santander. He added that retail banking is inherently local: regulatory differences, customer preferences, and compliance needs mean that services that scale well in one region don’t always translate easily into another.
Could Santander be an alternative to fintech challengers?
Santander presents Openbank as a cost-efficient digital platform that can scale, but even digital-only propositions must contend with different national regulations and product habits. Establishing the right compliance teams and adjusting to Canadian regulatory expectations are non-trivial steps that will affect execution and timing.
Even if Santander does win some customers, that alone may not break the hold of the major domestic banks. Vass Bednar, who leads McMaster University’s public policy master’s program and co-authored The Big Fix: How Companies Capture Markets and Harm Canadians, says increased choice is beneficial but likely insufficient on its own. She argues that meaningful change may well come from challengers in the tech sector — provided Canadians become comfortable entrusting financial services to non-traditional providers.
Experts including Liquornik and Spence point to open banking reforms and other policy measures as the clearest way to broaden competition. Those kinds of regulatory shifts could enable fintechs and new entrants to offer compelling alternatives to the established banks. But progress on those fronts has been slow, and that sluggish pace reflects a broader problem of low economic dynamism that Spence warns could leave Canada lagging if reforms are not enacted.
“If we want tomorrow to resemble yesterday, we can maintain the status quo,” Spence said. “But everywhere else, consumers are living in a different future — and if Canada does not adapt, it risks being left behind.”
More about banking
- Tired of bank fees? How to avoid the most common ones (overview and strategies).
- Review of digital account options and high-interest savings alternatives.
- Why credit card interest rates in Canada remain comparatively high.
- Can challenger banks and fintechs realistically take on the major Canadian banks?