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EQ Bank Built Its All-Digital Bank On Modern Technology

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When Equitable Bank in Canada, founded in 1970, decided to develop an entirely digital capability, it chose to create a new banking arm, EQ Bank.

Working with Temenos and Deloitte, it developed a banking platform in 18 months and launched three and a half years ago. Since then it has grown to 81,000 customers at the end of July, up 33% year on year.

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The Canadian market is dominated by six very large banks that hold more than 90% of the country’s deposits, said Andrew Moor, president and CEO of Equitable, which calls itself Canada’s Challenger Bank.  The country has another 66 banks, trust companies and credit unions, some very specialized and highly profitable.

Moor sees opportunity in the market.

“The incumbents make enormously high returns on equity, which suggests a lower-cost competitor can make a living in this marketplace,” he said. “Other banks are driven by traditional branch bank networks, large network of branches, and that isn’t changing in Canada as fast as it is in other markets around the world,” he added, citing Monzo which is gaining 40,000 new users per month in Europe.

“We run at 40% efficiency, the most efficient in Canada,” said Moor. It chose Temenos because the company knew the Canadian market — it was already the technology running Blue Shore Financial in Vancouver. The bank also pulled in a local design firm to customize the user interface.

EQ doesn’t have branches and never will, said Moor, although that means that it has some limits on the products it can offer, like auto loans which require paper, at least for now.

“Our view is we shouldn’t launch products that require a branch execution. We do things we can do really well digitally — that’s part of our challenger bank ethos.”

EQ has been rethinking what a bank account is all about, he said. It has an all-in-one account that pays 2.3% interest and has significant payment capability. As a digital bank, it does not offer ATM withdrawals.

“Getting hold of cash is a challenge.” But EQ customers can always get cash at a supermarket.

EQ is a good example of a challenger bank doing it right, said Emily Steele, Temenos president for North America. “They had remarkable success out of the gate, hitting their five-year target in two and a half years from a from revenue perspective.”

For now he accepts that EQ may be the secondary bank for the majority of its customers.

“But we are on a journey to change that and have people think of us as their hub account for payroll, mortgage, etc.” Then they might have a secondary account to get cash. And most people will continue to choose a credit card based which terms and rewards fit their lifestyle.

Many people deal with more than one financial institution, he added, and open banking will let consumers create a dashboard where they can see their accounts across multiple institutions.

“It’s pretty inconvenient now,” he admitted. “You have to log off one site to go to another to make sure you have enough to pay a credit card bill.”

He’d like to see the Canadian government push for open banking as a way to increase competition in a very concentrated banking system.

“Open banking is a great example of where you can increase competition without increasing systemic risk, but it requires a firm hand from the government.”

The bank attracts value-oriented consumers, Moor added, “People who buy ETFs rather than mutual funds, who use robo advisors. Their approach is quite different from a consumer who went to one bank for investments and insurance. Now we see, people are shopping around for the best value in each vertical.”

EQ will go national once they can operate in French, but French takes 50% more room than English to do the same instructions on a screen, he said.

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