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The big banks have been busily countering the threat from rival technology firms by beefing up their own offerings, either by forming partnerships or developing their own in-house expertise.Getty Images/iStockphoto

When Canadian bank executives talk about the threat from financial technology companies, they often mention the fact that new players have a key advantage: They operate in a relatively unregulated environment.

Although Canada's banking and insurance regulator is watching with great interest, this environment is unlikely to change any time soon.

"For those companies that don't have a bank licence or don't have a federal insurance licence or don't have a trust company licence, they are outside our direct purview. We have essentially no authority over them," said Jeremy Rudin, Superintendent of Financial Institutions.

The issue has moved from a hypothetical issue to something far more threatening to incumbent institutions, such as the Big Six, as so-called fintech gains traction in Canada.

Smaller fintech firms have been busily launching services to deliver online loans to small businesses and consumers, while tech behemoths have also been setting up shop.

For example, Apple Inc. recently launched its Apple Pay mobile payments service for iPhones in Canada. Although the initial rollout is limited to American Express card holders, it nonetheless demonstrates that Apple is keen to broaden its financial services reach internationally.

The big banks have been busily countering the threat from rival technology firms by beefing up their own technology offerings, either by forming partnerships or developing their own in-house expertise.

However, the speed at which the banks can adapt to this new competitive environment is in some ways hampered by the fact that they must adhere to a strict and relatively slow-to-change regulatory environment that gives unregulated competitors the advantage of speed.

That said, Mr. Rudin noted in a recent interview that the Office of the Superintendent of Financial Institutions (OSFI) is watching developments in this area with great interest. "We do have an objective to look at what's going on outside of the regulated sphere, to be up to date on it, to understand the implications it might have," he said.

Not only are unregulated fintech firms being observed for their impact on financial services, but also the banks are being observed for their interest in partnering with fintech firms. This has become an increasingly attractive option for banks that want to get a jump on the competition.

Canadian Imperial Bank of Commerce, for example, recently struck an exclusive partnership with small-business lender Thinking Capital Inc., which provides short-term online loans ranging from $5,000 to $300,000.

"In terms of technological change, we are obliged to update our guidance over time," Mr. Rudin said. "So as banks and insurance companies start outsourcing some of their activities, we've created guidelines about outsourcing, because we didn't want this practice to erode the safety and soundness of the institutions.

"And to the extent that regulated institutions are using other players outside of our purview, we have to pay attention to them."

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
AAPL-Q
Apple Inc
-1.06%171.48
AXP-N
American Express Company
-0.03%227.69
CM-N
Canadian Imperial Bank of Commerce
+1.3%50.72
CM-T
Canadian Imperial Bank of Commerce
+1.13%68.67
FISI-Q
Financial Institut
+0.97%18.82

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