SkipTheConsultations: Promising financial upstarts face headwinds amid regulatory uncertainty in Canada

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Andrew Chau, co-founder of SkipTheDishes Restaurant Services Inc., the Winnipeg-based food delivery platform that was purchased by London-based Just Eat PLC in 2016 for $200 million, doesn’t talk like someone who intends to sell his new venture, which, if everything goes to plan, could mean trouble for Canada’s biggest banks.

Chau is now in Calgary, where he, Jeff Adamson, another Skip co-founder, and Kris Read located Neo Financial, a “challenger bank” backed by a list of tech heavyweights, including Peter Thiel’s Valar Ventures and Shopify Inc. chief executive Tobi Lütke.

Both Skip and Neo got an early, indirect lift from the federal government’s Venture Capital Action Plan, which placed $390 million with a handful of privately managed funds to stoke investment in promising Canadian companies. Chau is living proof that public investment can accelerate innovation. But now that he’s in finance, he’s seeing up close how the government could also spark disruption via a lever that costs much less money to pull: regulation.

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Neo exists entirely online. The money it saves on branches and office towers allows it to offer a savings account that pays about 1.6 per cent, compared with 0.05 per cent at Royal Bank of Canada. “You shouldn’t be charged to bank with a bank,” Chau, who is Neo’s CEO, told FP Economy. “Banks make money in a multiple of other ways.”

Chau and his co-founders are ambitious. They want to get as big as Royal and the other legacy banks. Consumers would benefit from the competition, and the economy would benefit from the investment and innovation generated. Alas, the federal government is creating hurdles. Public consultations on a new regulatory regime that would allow customers to share their financial data were slowed because of the pandemic. The Finance Department had nothing new to say on the subject when we asked for an update on April 30. “The federal government’s top priority is supporting Canadians and businesses as the country weathers the COVID-19 pandemic, and begins its recovery,” an official said by email.

The uncertainty around regulation means promising upstarts in financial services such as Neo continue to face headwinds when they need a tailwind to help them catch up to rivals from the United Kingdom and Australia, which have updated their rules to allow data-sharing.

“The problem with consultations is they are just consultations,” Chau said. “The government isn’t mandating anything. They have created a forum for people to talk about it.” He said Canada simply needs to look at the U.K. model, where every bank had to participate.

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Needless to say, Canada’s big banks are less than keen. They say they are worried about privacy and cyber-attacks. Maybe. But control of their clients’ financial histories is one of their greatest competitive advantages. If they had to compete on the quality of their technology, or interest on deposits, they’d be in trouble.

“We’re not relying on it,” Chau said of the rule changes, known as open banking. “That’s why we have bank partners. We can work around it.”

No doubt. But what might they be able to do if they could compete with the legacy banks on a level playing field?

This article first appeared in the FP Economy newsletter. Sign up here to get it delivered to your inbox every Monday.