Canada needs to track financial well-being metrics, support financial innovation and strengthen community access to banking to serve more underserved and financially vulnerable people, according to a paper by Olga Morawczynski published by Canadian Standards Association, the standards testing organization.
Disposable income growth has slowed, contributing to declining savings rates and increased reliance on credit for families in lower income brackets. And, as the wealth gap increases, lower income households, newcomers, Indigenous people and self-employed workers find it more difficult to access financial services, Morawczynski wrote in Financial Well-being Under Pressure: Addressing Canada’s Institutional Barriers.
Morawczynski said in an interview that a coordinated national strategy tackling fintech innovation, funding and access to services is needed. She also called for the Financial Consumer Agency of Canada (FCAC) to establish a financial well-being unit to promote competition, financial inclusion and long-term consumer resilience.
Tracking metrics like savings rates, debt levels and financial access for Indigenous communities could reveal gaps and allow FCAC to gauge the effectiveness of financial policies to improve Canadians’ financial security, she said.
The FCAC would need to measure both access and usage, Morawczynski said. “Not only do they have access, but they have the right product so that they can meet their financial goals.”
Embrace fintech
The concentration in Canada’s financial sector means it is slow to innovate and more costly for consumers than if there were more competition, Morawczynski said. While fintechs have the potential to reach rural, low-income and other underserved communities, they don’t have the capital to scale in a complex regulatory environment.
Implementing open banking will help smaller players connect to the wider banking infrastructure and reach more clients, bringing more competition to the industry, she said.
In addition, streamlining the currently fragmented regulatory landscape for fintech operation could increase compliance clarity and make it easier for fintechs to partner with financial institutions. This would require improved coordination between federal and provincial governments, the adoption of open banking and establishment of a centralized fintech support unit to provide clear guidance on compliance and licensing.
As new technologies emerge, innovators could conduct tests in regulatory sandboxes, Morawczynski said. “Rather than saying, ‘No, wait for regulations,’ just do it as soon as we’re starting to see an emerging technology… and let us understand [it] in a safe and controlled environment.”
To unlock fintech financing, Morawczynski said the government should provide tax incentives for angel investors to fund domestic fintechs, introduce a loss-guarantee program to reduce risk for investors and encourage pension funds to boost domestic investment.
“There’s so little money flowing into our [fintech] ecosystem right now,” she said. “[Investors] will want a guarantee if they’re to put their money into Canada versus the U.S.”
Another loss-guarantee program could be introduced in Quebec to encourage fintechs to provide a French-language version of their services and comply with the province’s civil law regime.
“Not everyone has actually made the decision to go into Quebec because they found it too difficult and too small for all that extra investment,” Morawczynski said.
Improve access to financial services
Canadians in rural areas have a harder time accessing banking services. Postal banking, such as Canada Post’s new MyMoney program with TD, demonstrated the potential for post offices to act as community banks, Morawczynski said. Services could include small loans, cheap chequing accounts and facilitating government benefit distribution.
Entering the banking industry could provide Canada Post, which is beleaguered by high operating costs, with an additional revenue stream to help fund rural post offices, she added.
Legacy banks should be required to submit financial inclusion plans to underserved areas, Morawczynski argued, with tax incentives given to banks for establishing networks in marginalized communities.
In addition, credit unions can support underserved segments like newcomers or rural communities, she said. “A lot of the big banks look at the high-income segments, whereas fintechs and also credit unions and other smaller institutions can specialize.”
Expanding physical access to banking should be complemented by expanding digital access, too. The government should establish minimum digital access standards, subsidize internet costs for low-income people and deliver financial literacy programs digitally, Morawczynski said.