Question - I’ve heard a few theorize that rolling out open banking could lead to new bank competitors (example - Power Corp has a lot of fintech… could they also bank… and become a fully integrated bank + insurance company)… and from there could we also see the old rule that banks and insurance can’t cross sell fall away? After all - if pow can move organically towards insurance+fin tech + banking… why can’t a bank work the other way… or even allow MFC and CIBC to merge.
Hi Jeremy, a couple of things to unpack here. First off, banks are absolutely allowed to cross sell. TD has an auto insurance products, RBC has a high net worth personal lines insurance products, etc.. What is NOT allowed is TIED selling. I.e. I will ONLY give you this home mortgage if you also purchase our auto insurance product.
The confusion on cross selling comes from the fact that inside bank branches there are regulations on what type of insurance products they can sell - but those prohibitions are largely becoming irrelevant as sales has gone online/digital anyway.
So, while we could very well see Power corp become a fully regulated bank, the regulations around cross selling is not one of them, given none of their fintechs have any real physical locations (aka branches) that I know of.
Likewise, our banks have or are launching digital only offerings (Tangerine, Simpli, etc..)
So lots of disruption happening, but in this case, not tied to Open Banking.
My understanding is that they have the businesses but - they don't cross sell. My insurance provider (one of the big 6) has never offered me other financial services. Similarly - my bank (a different big 6 member) has never offered me P&C insurance and only rolled out life insurance when asked and that ended up being done with a different insurance company (one of the big Lifecos). To your point... this used to be a branch exercise... and as things have come online that has changed - but I don't think the wall between the businesses has fallen. Furthermore - the pre-COVID testimony to the finance senate committee on Open Banking was direct in noting that bank/insurance cross selling and in turn, mergers - could be on the table if Open Banking were approved.
Pls correct me if you understand things different - but I've been told that if allowed... you'd be seeing one of SLF/MFC merging with a big bank but for the ruling back in 2003 that still hasn't been changed.
An educated guess is banks don't cross sell largely because the compliance team believes there is some chance that it could be deemed as tied selling, and thus the risk is not worthwhile. Banks do a lot of things that are internal policy reasons not strictly regulatory.
As for a merger, it would run into the Banks Holding Act, possible, but the bank would have to end up on top and wholly own SLF/MFC post merger. This doesn't make it impossible just harder.
Lastly, tech companies largely want to avoid being banks (including Power IMO) because of the regulatory cost and burden. What they really want goes well beyond open banking into banking as a service. We've seen BAAS platforms take off in the UK and the US. It will be a while before Canada sees any true BAAS platforms.
Excellent article. Thank you for sharing.
Question - I’ve heard a few theorize that rolling out open banking could lead to new bank competitors (example - Power Corp has a lot of fintech… could they also bank… and become a fully integrated bank + insurance company)… and from there could we also see the old rule that banks and insurance can’t cross sell fall away? After all - if pow can move organically towards insurance+fin tech + banking… why can’t a bank work the other way… or even allow MFC and CIBC to merge.
Hi Jeremy, a couple of things to unpack here. First off, banks are absolutely allowed to cross sell. TD has an auto insurance products, RBC has a high net worth personal lines insurance products, etc.. What is NOT allowed is TIED selling. I.e. I will ONLY give you this home mortgage if you also purchase our auto insurance product.
The confusion on cross selling comes from the fact that inside bank branches there are regulations on what type of insurance products they can sell - but those prohibitions are largely becoming irrelevant as sales has gone online/digital anyway.
So, while we could very well see Power corp become a fully regulated bank, the regulations around cross selling is not one of them, given none of their fintechs have any real physical locations (aka branches) that I know of.
Likewise, our banks have or are launching digital only offerings (Tangerine, Simpli, etc..)
So lots of disruption happening, but in this case, not tied to Open Banking.
My understanding is that they have the businesses but - they don't cross sell. My insurance provider (one of the big 6) has never offered me other financial services. Similarly - my bank (a different big 6 member) has never offered me P&C insurance and only rolled out life insurance when asked and that ended up being done with a different insurance company (one of the big Lifecos). To your point... this used to be a branch exercise... and as things have come online that has changed - but I don't think the wall between the businesses has fallen. Furthermore - the pre-COVID testimony to the finance senate committee on Open Banking was direct in noting that bank/insurance cross selling and in turn, mergers - could be on the table if Open Banking were approved.
Pls correct me if you understand things different - but I've been told that if allowed... you'd be seeing one of SLF/MFC merging with a big bank but for the ruling back in 2003 that still hasn't been changed.
An educated guess is banks don't cross sell largely because the compliance team believes there is some chance that it could be deemed as tied selling, and thus the risk is not worthwhile. Banks do a lot of things that are internal policy reasons not strictly regulatory.
As for a merger, it would run into the Banks Holding Act, possible, but the bank would have to end up on top and wholly own SLF/MFC post merger. This doesn't make it impossible just harder.
Lastly, tech companies largely want to avoid being banks (including Power IMO) because of the regulatory cost and burden. What they really want goes well beyond open banking into banking as a service. We've seen BAAS platforms take off in the UK and the US. It will be a while before Canada sees any true BAAS platforms.
Excellent. Christian is such a good choice to educate on this. Let’s move forward.
This is a terrific guide and gives confidence. Love the choice of cover photo - says a great deal!