Since the creation of online banking in the early 2000s, there hasn’t been a whole lot of progress in the Canadian banking system, and other countries are zooming ahead.
Canada has always been commended for its stable and secure banking practices, even earning the title of the “safest in the world” in 2008. But let’s face it: this emphasis on stability hasn’t exactly encouraged us to push the envelope when it comes to innovation.
Compared to the United States, Canada’s legacy banking sector has consistently prioritized the status quo over experimentation and innovation. This focus has completely stalled progress and made our customer experience much worse than other nations.
When open banking emerged a few years ago, it promised a transformation in the industry. With open banking, people are able to share their financial data with fintech companies more seamlessly, allowing for non-traditional financial service providers like mobile banking apps, trading platforms and alternative lenders to expand choice and convenience for consumers.
A robust open banking framework would allow the industry to overhaul its clunky, outdated operating systems, modernize payment infrastructure and provide a platform for fintechs to fill the gaps left by Canada’s Big Five. Despite promises from the Canadian government that we’d see a Canadian-made open banking model by 2023, we’ve yet to see any concrete steps toward that solution. To say our government has been hesitant to embrace change would be an understatement.
The Personal Loan Landscape
While the long-delayed move toward open banking continues to hold the industry back from achieving its full potential, in the last five years, technology has still had a drastic impact on the way Canadians access personal loans. Traditionally, most borrowers would have to visit a bank branch or some other brick-and-mortar location to apply for a loan. The process would involve providing extensive paperwork, including bank statements, pay stubs, a void cheque, and utility bills, all of which would need to be processed manually by a clerk. Providing these documents made the process of obtaining a loan quite challenging and time-consuming, sometimes resulting in weeks before an application received approval.
Recent technology has eliminated the tedious bureaucratic tasks that are involved in traditional loan applications. Because of this, smart lenders, like Spring Financial, are able to provide better terms, improved transparency and quicker access to personal loans. Online loan applications can also be completed within minutes, giving Canadians the ability to acquire financing through a convenient process that can be done entirely on their device. Under an open banking system, this process could be even further simplified, giving Canadians more flexibility and control over their finances.
AI’s Impact on Personal Lending
Fintechs and the increasing demand for open banking infrastructure continue to push the boundaries of traditional financial services even within the constraints of the current system. What we’ve seen is a slow adoption of Artificial Intelligence (AI) in the Canadian banking industry, giving fintechs a unique opportunity to innovate and level the playing field.
We are also experiencing a monumental shift towards leveraging data. In the personal lending space, this means machine learning is making the process for a borrower to access credit much easier. Lenders can now categorize data quicker than ever and process larger data sets, increasing loan application intake capacity and streamlining the approval process. AI is a powerful support tool for evaluating a borrower’s ability to repay by analyzing data patterns beyond traditional credit scores, often eliminating the need for additional documentation like pay stubs, landlord letters or utility bills. This reduces friction for the borrower, shortening processing times and enhancing their overall experience.
The Future of Lending in Canada
For years, Canadian fintechs have been spearheading the effort to modernize our financial sector, but until the rest of the industry meets this pace, Canadians will continue to miss out. While the progressive changes we’re seeing today are setting the stage for an era of innovation and opportunity in the Canadian financial sector, we won’t get there without widespread adoption and acceptance of open banking practices from regulators and legacy banks.
To fuel the innovation Canada desperately needs to modernize our banking system, we need our government and the Big Five banks to embrace technology and open banking infrastructure – not shy away from it. Without the benefits open banking will provide, we’ll be left behind as other countries experience significant improvements in the ways they access funds and how quickly they’re able to do it. This transformation is not just an option; it’s a necessity if Canada aims to stay at the forefront of global financial evolution.