Canada’s banking system, long praised for its stability, is stuck in a modernization pothole. Banking regulators are betting on a digital dress-up of a broken system. Open banking is delayed again until 2026, and Canada remains the only Group of Seven nation still waiting for a real-time payments system. In other countries, consumers can share their financial data securely. In the United Kingdom, open banking allows customers to link multiple accounts, compare loan offers instantly and initiate same-day payments from a single app, but Canadians remain stuck in a “dial-up” banking era.
These delays are symptoms of a deeper issue. Modernization efforts have so far treated technology as a silver bullet, when, in fact, technology is only as effective as the system it is plugged into. Launching advanced payment rails or data-sharing application programming interfaces will not help if the already-established banks retain the ability to stall progress or restrict access[SR1] to new competitors. And that’s exactly what’s happening.
The Big Six banks still control 90 percent of the market — a share unchanged for decades. Meanwhile, small businesses face the same credit roadblocks, rural Canadians drive twice as far to reach a bank branch compared to the national average and Indigenous communities can’t use on-reserve assets as collateral. When Revolut, one of Europe’s largest and most successful financial technology (fintech) companies, tried to enter Canada, it gave up and left simply because the company couldn’t offer the full suite of services it already provides in countries such as Australia, the United Kingdom and the United States. In the end, Revolut found itself trapped by Canada’s binary framework that forces entrants to be either a full bank or not a bank. Regulations, more than competition, were the insurmountable barrier.
Historically, while banking concentration has contributed to Canada’s banking stability (particularly during the 2008 financial crisis), this safeguard should not bring stagnation along with it. Other countries have proven you can have both financial soundness and innovation.
This problem goes beyond mere technology and becomes an issue of entrenched dominance. With vast market influence, major Canadian banks have little incentive to rush into changes that might loosen their grip. On the contrary, they’ve often used their privileged positions to keep potential competitors out and slow down innovation. For example, major Canadian banks have leveraged their dominance to control Interac’s e-transfer system, imposing a volume-based wholesale pricing model that favoured large institutions while burdening smaller banks and fintechs with higher costs, thus creating entry barriers.
Merely tweaking the technological infrastructure will not solve Canada’s banking woes unless it comes with deep changes to the system surrounding it.
Canada suffers from innovation theatre. We announce flashy digital initiatives while ignoring the structural barriers that matter. Our regulatory system favours established players that can afford armies of compliance lawyers. New banking companies rarely break through, with notable exceptions such as Wealthsimple and Neo Financial succeeding largely by leveraging niche markets, strong branding and significant venture funding. These exceptions prove the rule. Success requires finding narrow gaps rather than competing broadly, and replication remains difficult due to systemic barriers.
Contrast this with Estonia’s digital transformation. Estonia built a digital system that works because they rebuilt the entire governance structure first, introducing the X-Road secure data exchange in 2001 and implementing a nationwide digital identification system. The country did not just digitize old processes; it also deeply transformed them. Estonians can now complete 99 percent of government services online in less than 15 minutes, transfer money instantly between any banks and access their complete financial history through a single digital identity — all while maintaining bank-level security. Estonian citizens can access thousands of government and banking services through one secure digital identity. Essentially, the technology works because the system was designed for it to work.
A Lesson in Banking Transformation
Canada has transformed entire systems before. Former Saskatchewan Premier Tommy Douglas did not build the first universal health-care system by first upgrading hospitals’ equipment. In 1962, the province restructured how it funds, delivers and manages medical care — a bold experiment that eventually became the foundation for healthcare across Canada. The same systemic shift is possible, and necessary, in banking.
We know how to do system-level changes when we choose to. A shift as big as the nationwide child-care program required coordinating 13 provinces and territories — each with different priorities and capacities. By the end, federal negotiators had signed agreements worth $30 billion in less than a year. When political will exists, Canada moves mountains.
Banking reform deserves the same urgency and ambition. Merely tweaking the technological infrastructure will not solve Canada’s banking woes unless it comes with deep changes to the system surrounding it. System transformation, on the one hand, means reimagining how institutions function and interact by changing rules, incentives and power structures that shape those processes. On the other hand, technical upgrades merely digitize old processes without addressing underlying dysfunction.
To break the cycle, Canada needs a systems approach to banking innovation — an approach that considers the interconnected rules, institutions and actors shaping the financial ecosystem. To start off, three changes would transform our financial system more than any app or algorithm.
First, the country needs to refocus on measuring outcomes that matter, such as affordability, accessibility and economic opportunity. It is time to stop celebrating technical milestones and start tracking whether banking innovation helps people. Does new technology expand credit access for entrepreneurs? Does it reduce costs for underserved communities? If digital banking doesn’t solve real problems for real Canadians, it becomes expensive theatre. A modern payments system is only useful if it’s open to all qualified players.
Second, Canada should build regulations that adapt to new technologies and evolve at the same rate. This means creating principles-based frameworks that keep pace with new developments. Give new companies the chance to prove they can serve customers safely without having to navigate a regulatory obstacle course, such as regulatory sandboxes that allow fintech companies to test innovative services, similar to successful models in Singapore and the United Kingdom. Test new ways of oversight, not just new technologies to oversee. Innovate in how we regulate, not just in what we regulate.
Third, break up the established banks’ advantages. This does not necessarily mean breaking up the banks themselves or threatening banking stability for the sake of innovation. It means removing fundamental barriers that prevent competition, such as allowing financial institutions to use alternative credit-scoring methods based on rent and utility payments, or creating regulatory fast tracks for companies already operating in equivalent countries. Make the Big Six compete on service instead of regulatory familiarity.
The banking industry might oppose many of these regulatory changes, as they derive significant advantages from the current system’s complexity and regulatory barriers. The industry argues that stability requires market concentration, that innovation needs patience and that Canadian regulation protects the system’s stability.
Those assumptions might prove wrong. Market concentration can create vulnerabilities rather than stability, and innovation delayed often becomes innovation denied. Regulations that prevent competition don’t protect consumers; instead, they harm them and limit their options.
Allied countries are building financial systems designed for the digital age, while Canada risks digitizing an outdated system. Every delay costs Canada global economic opportunity and innovation capacity that we can’t recover.
Canada has the potential to catch up to the world in fintech innovation, but only if we stop treating modernization as a tech project and start thinking of it as a deep transformation. Systemic transformation, not surface-level digitization, is the only cure for Canada’s banking stagnation.
