How foreign banks are shaking up commercial banking in Canada

Several non-Canadian banks are appealing to B2B clients by offering more innovative services. Here’s what domestic institutions can do to retain market share. 

Despite what many Canadians think, Canada’s banks aren’t the only financial institutions in town. Over the last several years, a number of U.S.-based banks have set up shop in the Great White North to service corporate clients. J.P. Morgan offers investment banking, plus treasury and commercial banking services; Citibank provides similar investment and commercial banking services, and Wells Fargo provides financing and investment banking expertise to Canadian companies. Many other U.S. and international banks operate within the country’s borders, too. 

While many Canadian businesses do use one of the Big Five banks for commercial banking, the country’s financial institutions can’t take their clients’ loyalty for granted. More U.S. companies are now working directly with Canadian banks to help them grow here – at one time these banks helped domestic operations expand to the U.S. or they helped U.S. businesses set up shop in Canada – and many are also taking more innovative approaches to commercial banking than their Canadian peers. 

For example, in 2019, Silicon Valley Bank, a U.S.-based financial institution that provides lending services to startups, venture capital companies and more tech and life science-focused operations, opened a Toronto office. It’s considered one of the more innovative banks, in part because it has embraced the use of APIs, which makes it much easier for customers to open bank accounts online and send payments digitally. 

While Silicon Valley Bank and even J.P. Morgan may not have the same name recognition among commercial customers as the Canadian banks do, our domestic institutions can’t sit idly by while these banks take market share. Sure, it’s not always easy for commercial customers to switch to other institutions, but if a business can find banking products that can help them become more efficient, cost effective and allow them to offer better service to their customers, then you can be sure they’ll take the time to move to that more innovative bank. 

Invest more in innovation 

So what can Canadian financial companies do to combat the threat these foreign banks – and increasingly, upstart international fintechs – pose? The first place to start is to invest more in technology and digital modernization. According to J.P. Morgan, the company invests $11 billion a year in technology, some of which will surely find its way to the products Canadian companies are using. Compare that to RBC, considered one of the more innovative Canadian banks, which said in 2018 that it planned to spend $3.2 billion on technology that year. It’s hard to compete with that kind of spending gap. Canada’s biggest banks have spent $71 billion on technology since the pandemic began, according to Crowdfundinsider.com, but a bigger investment will be needed to compete with the more monied banks and the younger, hungrier ones. 

Keep the commercial customer in mind 

Canada’s banks must also pay closer attention to B2B banking innovation. Domestic banks have been largely focused on digitizing their internal processes and improving their retail customers’ experiences when it’s their corporate clients that really need 21st-century digital tools. Many of the people they’re dealing with on the corporate side are used to seamless technological experiences – thanks to their experience with such businesses as Uber, Skip the Dishes and Airbnb – and they want to process payments, handle payroll and manage cash flows in that same user-friendly way. If the Canadian banks don’t improve their offerings, then the foreign banks will be happy to step in. 

Partner with fintechs 

Canada’s banks can’t wait to innovate. At the same time, their competition is investing in technology, many are also working with fintechs to deliver better commercial banking services today. Silicon Valley Bank has made investing and working with fintechs a core part of their business, J.P. Morgan is also working with a number of fintechs, including FISPAN, to offer experiences their customers can’t get elsewhere. With Apple, Amazon, Facebook, Google and others also trying to get in the banking game, Canada’s institutions must also embrace financial technology and work with companies that can improve a bank’s services now. 

It’s only a matter of time before companies in Canada realize there’s a lot more available to them than what the Big Five provide. But with more innovation, more fintech partnerships and a desire to improve the user experience of their customers, there’s no reason why Canada’s banks can’t push back and stave off the competition.