Technology‑led innovation and emerging services in the Canadian Financial Services Sector
Revised Market Study Notice
The original market study notice was published on May 19, 2016. Timelines (section 21) and contact information (section 24) were updated in January 2017.
Table of contents
Notice of study
- The Competition Bureau (Bureau) is commencing a market study into the competitive landscape for new, technology‑led innovation and emerging services in the Canadian Financial Services Sector (the Study).
- The Study supports the Bureau’s Strategic Vision 2015‑2018 to promote competition through market studies and the analysis of innovation and its impact on competition.
Role of the Competition Bureau
- The Bureau enforces and administers the Competition Act (Act). As part of its mandate, the Bureau participates in a wide range of activities to promote and advocate the benefits of a competitive marketplace. More competition generally leads to lower prices for consumers, as well as increased choice and innovation.
- Among the tools the Bureau uses to advocate for competition are market studies. Market studies allow the Bureau to study an industry in depth, and understand the competitive dynamics in that industry. Market studies are a useful tool for diverse stakeholders, including policy makers, industry participants, and consumers.
Purpose of the study
- The Study will enable the Bureau to advise and guide financial sector regulators and other relevant authorities on how to ensure that regulation does not unnecessarily impede innovation and competition in the sector.
Premise of study
- Competitive markets deliver significant benefits to the economy. Competition makes the economy more efficient; gives small and medium businesses an equitable chance to participate in the economy; provides consumers with competitive prices, product choice, and the information needed to take decisions; and drives innovation.
- The Bureau operates on the assumption that competition is good for the economy and those who participate in it, and that regulation should be minimally intrusive on market forces—while addressing legitimate policy objectives—allowing competition to drive innovative forces and improve outcomes for Canadians.
- At the same time, market failure does happen. In such circumstances, regulations may be developed to prevent certain market conduct or outcomes. Regulation is also used as a tool to protect against negative externalities that might otherwise be unaddressed by the market, or to prevent some public harm. An unintended consequence of overregulation is that competition can be restrained and the efficiency of the economy suffers. This consequence can be exacerbated during periods of rapid innovation and technological change as new business models challenge the status quo.
Why choose the financial services sector?
- The Bureau decided to study the financial services sector for three primary reasons. First, financial services were identified during the Bureau’s public consultation on potential advocacy initiatives in 2013.Footnote 1 Second, the sector itself is an important pillar in the Canadian economy, contributing approximately 10% of Canada’s gross domestic product in 2014, and the banking sector alone employs over 280,000 Canadians (2014 figures).Footnote 2 Third, it plays a significant role in the day to day life of the majority of Canadians, allowing them to deposit wages, pay rent, save, borrow, invest, transfer and spend money.
- Further, Canada appears to be lagging other countries in adoption of FinTech (financial technology). A recent report by Ernst & Young LLP shows that in Canada 8.2% of digitally active consumers have used at least two FinTech products within the last six months, in the form of money transfers and payments, and savings and investments, in comparison to 15.5% globally.Footnote 3
- Seeing an opportunity, new entrants are using technology to innovate and change the way Canadians bank. Technology can be used to reduce costs, transact directly without the need for intermediaries, and provide more choice by unbundling products and services. By bringing these technologies to market, FinTech companies are promising a better consumer experience, lower fees and greater savings for Canadians.Footnote 4
- The FinTech landscape is rapidly evolving as new products and services are being unveiled and the number of start‑ups entering the industry grows. FinTech holds the potential to disrupt financial services, spur innovation, and generate benefits for individuals and companies across Canada.
Key questions for the study
- With the continued and rapid speed of innovation in the digital economy, tools designed for yesterday’s marketplace may not work well tomorrow.
- When innovation is unnecessarily stifled—by regulation or otherwise—the result can be a less competitive and less dynamic marketplace. Similarly, without conscious oversight, when heavily regulated markets become less regulated, consumers can be left exposed without the tools or information to make sound decisions.
- With these potential risks in mind, the Study will aim to answer the following key questions:
- What has been the impact of technology‑led innovation on the competitive landscape? What is happening to competition? How will innovation impact competition in the future?
- How will consumers benefit from FinTech?
- What are the barriers to entry, expansion, or adoption for FinTech companies? Are they regulatory or structural?
- What is the current state of the regulatory framework for financial services? Does it support or inhibit competition and innovation? Are changes required to encourage greater competition and innovation in the sector?
- Are the consumer protections in place today enough to adapt for the future? What additional protections should be put in place for consumers? Is there a need for greater transparency in fees?
- What issues should be considered when developing or amending regulations to ensure competition is not unnecessarily restricted?
Scope of study
- The Study will focus on new, technology‑led innovation and emerging services in the Canadian financial services sector. The Bureau intends to focus on innovations that affect the way Canadian consumers and small and medium businesses commonly encounter financial products and services, including:
- peer‑to‑peer banking (e.g., peer‑to‑peer lending and transfers);
- e‑wallets, mobile wallets and payments;
- crowdfunding, in particular for small and medium‑sized business capital; and
- online‑based financial advisory services (also known as "robo‑advisors").
- In any discussion of FinTech, it is difficult to escape mention of Blockchain technology and its potential impact on financial institutions and the sector as a whole. The Study’s focus, however, is on consumer‑facing activities, and Blockchain technology does not fit that mould. To the extent that stakeholder consultation reveals that Blockchain technology is likely to have a direct impact on competition, in particular with respect to those products and services noted above, the Study will explore that impact, as well.
- The Bureau does not intend to study:
- insurance (property and casualty, travel, and health);
- currencies and crypto‑currencies (e.g., Bitcoin);
- payday loans;
- loyalty programs;
- deposit taking;
- accounting, auditing, and tax preparation and services;
- large corporate, commercial or institutional investing and banking (e.g., pension fund management, corporate mergers and acquisitions); and
- business‑to‑business financial services beyond those services noted above (e.g., cash handling).
- As the Study progresses, the topics within the scope of the Study may change (including adding, substituting, or removing topics). In the event that the scope is changed significantly, the Bureau will update this notice and advise stakeholders via this portal of the changes.
- Over the course of the Study, the Bureau will gather and analyse information from various sources. The Bureau will consult academic literature, review the experience of other jurisdictions (where applicable), consult experts, market participants and engage with key stakeholders.
The Bureau has updated the key dates associated with the FinTech market study, to account for the complexity of the regulatory landscape and changes that have occurred in the marketplace since the study was first announced in spring 2016.
The updated timeline is as follows:
Announce the study
Stakeholder engagement and research begins
Information analysis begins
Workshop "driving competition and innovation in the financial services sector"
- Stakeholders with an interest in FinTech or the financial services sector are invited to provide written or oral submissions on the Study or on specific issues relevant to the Study. Please provide written submissions by mail, fax, or email to the officers identified below. If you would prefer that the Bureau contact you for an oral interview, please provide your contact information. The Bureau would appreciate receiving submissions and/or indications of willingness to participate in an oral interview before June 30, 2016, to provide adequate time to review and conduct follow up interviews as necessary.
- The contacts for this Study are Alexander Jokic (firstname.lastname@example.org) and Marie-Hélène Briere (email@example.com):
Senior Competition Law Officer
Competition Promotion Branch
Fax : 819‑953‑2931
Competition Law Officer
Competition Promotion Branch
Place du Portage Phase I
50 rue Victoria
- The Bureau conducts its advocacy and enforcement activities under the authority of the Act. Section 29 of the Act protects information obtained by or provided to the Bureau, including the identities of the persons who provided the information, and any information that could reveal their identities. However, when information has been made public or where persons providing information authorize its communication to other parties, subsection 29(2) permits the disclosure of such information. Additionally, subsection 29(1) provides exceptions for the communication of information to a Canadian law enforcement agency or for the purposes of the administration or enforcement of the Act. The Bureau has published a bulletin on the communication of confidential information on its website, and stakeholders are encouraged to consult that bulletin or direct specific questions to the officers identified above.
- Should the Bureau publish a report, the analysis therein may be based on confidential or commercially sensitive information. Where a submission contains specific information that is commercially sensitive or confidential, we encourage stakeholders to identify this information in their submissions. The Bureau will anonymize the information to the best of its ability.
- The Bureau will conduct its analysis in confidence and will not commit to sharing any draft report or conclusions of its analysis prior to its release. However, to ensure that the report meets confidentiality requirements, the Bureau will provide affected stakeholders, as appropriate, with an advance copy of the report forty‑eight hours prior to its intended publication for the sole purpose of allowing them to identify whether any commercially sensitive information has been included.
- The Bureau may exercise its authority to make representations to federal and provincial boards, commissions and tribunals, drawing on information obtained and analysis conducted throughout the course of the Study (including prior to the publication of any report), where appropriate.
Recent Bureau experience in the financial services sector
2015: Submission to the Department of Finance
The Bureau provided a submission to the Department of Finance Canada in response to a call for submissions on a consultation paper entitled "Balancing Oversight and Innovation in the Ways We Pay," on the topic of mobile payments. The Bureau’s submission highlighted the importance of ensuring that consumers can easily switch between different payment products on their mobile devices, and that merchants are able to reduce their costs of accepting mobile payments.
2010‑2013: Bureau alleges that Visa and MasterCard impose restrictive rules on merchants
On December 15, 2010, the Bureau filed an application with the Competition Tribunal challenging rules that Visa and MasterCard impose on merchants who accept their cards. In the Bureau's view, these rules impeded or constrained competition for credit card network services, including competition with respect to credit card acceptance fees—fees that merchants typically pass on to their customers in the form of higher retail prices for goods and services. In particular, these rules impeded or constrained merchants from:
- discouraging the use of more expensive credit cards by customers in favour of lower‑cost methods of payment;
- declining to accept certain credit cards, such as those with higher card acceptance fees; and/or
- applying a surcharge to transactions where the customer uses more expensive credit cards.
The Competition Tribunal dismissed the Commissioner’s application, finding that the requirements under the price maintenance provision of the Act had not been met. Despite this finding, the Tribunal carried out an alternative analysis in the event that it was wrong in its legal interpretation. Under this analysis, the Tribunal found that there had in fact been an upward influence on prices and an adverse effect on competition in the market for credit card network services as a result of the no‑surcharge rule. In its decision, the Tribunal suggested that the matters raised in the Commissioner's application would be better addressed by regulation.
1996: Allegations of abuse of dominance by the financial institutions controlling InteracThe Competition Tribunal issued a Consent Order in 1996 following an investigation into an alleged abuse of dominance by the major financial institutions that controlled the Interac Association ("Interac"). The Consent Order, which was subsequently converted into a Consent Agreement, promoted competition and, in particular, increased consumer choice by preventing Interac's members from engaging in certain anti‑competitive practices. The Consent Agreement did this by, among other things, opening participation in certain Interac services to other commercial entities and by requiring that certain entities be provided with all necessary technical specifications and information. The Consent Agreement also required that Interac continue to be managed on a not for profit basis. Interac approached the Bureau to vary the Consent Agreement in both 2010 and 2013. While the Bureau did not consent to the requested variation in 2010, it did consent to the requested variation in 2013. In this instance, the Bureau was of the view that, over the course of three years, the marketplace had undergone considerable changes, including developments in networking and payments technologies having opened the door to new shared payments types (e.g., contactless payments and mobile payments) and new ways of networking. On September 11, 2013, the Tribunal granted Interac’s request to vary the Consent Agreement.
The Bureau has also reviewed several significant mergers in the sector, including between banks, credit unions, credit card issuers, lenders, wealth and investment management firms, and stock exchanges. For example:
- February 8, 2013: Competition Bureau Statement Regarding the Acquisition of Ally Canada by Royal Bank of Canada
- July 4, 2012: Competition Bureau Completes Review of Proposed Maple‑TMX Transaction
- February 24, 2009: Merger of TSC Group Inc. and Bourse de Montréal Inc.
- January 28, 2000: The Competition Bureau’s Letter to the Toronto‑Dominion Bank and Canada Trust
- December 11, 1998: The Competition Bureau’s Letter to the Royal Bank and Bank of Montreal and The Competition Bureau’s Letter to the CIBC and TD Bank
We encourage stakeholders who wish to make a submission to review this annex when preparing their submission. Please include as much relevant detail as possible, for example, by including reference to specific laws and regulations, or by using specific data or anecdotes.
Remember to include necessary contact information to enable staff to reach you for follow up questions or discussions.
The topics that the Study will explore include the following:
Topic 1: The competitive impact of FinTech and new innovation to traditional or incumbent financial services providers
- What has been the impact of technology‑led innovation on the competitive landscape?
- What do you expect the future impact to be?
- How are incumbent service providers reacting?
- How have regulators reacted?
Topic 2: Barriers to entry or innovation, including regulatory and non‑regulatory barriers
- What are the barriers to entry?
- Are there regulatory barriers?
- Are there structural or other barriers?
- How will new entrants overcome these barriers? Have they? Can they?
Topic 3: Potential regulatory reform
- Regulations in the sector exist to protect consumers, institutions, and the economy as a whole.
- Will changing them put any of these goals at risk?
- How can those risks be mitigated?
- Do existing regulations inhibit competition or stifle innovation? If so, can/should they be relaxed to encourage more competition?
- Are new regulations or policies required, now that entrants and new services are emerging?
- What issues should be considered when developing or amending regulations to ensure that competition is not unnecessarily restricted?
- Date modified: