Visit SaltWire.com for more of the stories you want.
Vote with confidence. Get informed with our in depth election coverage.
Diversity in political representation
The Rise of the Independents in Cape Breton
The election’s on: Now Canadians should watch out for dumbfakes and ...
Political seeds planted by local activism
How could young voters affect this election?
Two developments on Tuesday may reshape the relationship Canada’s big banks have with the big technology companies that continue to creep into the financial-services sector.
The first announcement, an Amazon.com Inc.-related credit card issued by Toronto-Dominion Bank’s MBNA division, might inspire some envy among the lender’s peers. TD was even highlighted in a press release as “the first Canadian-headquartered bank to issue an Amazon credit card.”
The rewards card is being issued on Mastercard Inc.’s global payments network and will let Amazon Prime members earn back 2.5 per cent when using the card at Amazon.ca and Whole Foods Market in Canada, and one per cent for all other eligible purchases. Non-Prime cardholders get 1.5 per cent on Amazon purchases and one per cent on the rest.
“This is a major win for TD Bank,” wrote Eight Capital analyst Steve Theriault. “Coupled with the anticipated launch of a revamped Air Canada card in 2020, we believe that TD Bank is well positioned to drive increased credit card market share over the medium term. This is also a significant win for TD as Canadian banks continue to solidify their rewards ecosystems and defend market share in an increasingly digital marketplace.”
The other shot fired across the banks’ bow on Tuesday was by Facebook Inc., which officially announced a plan for a new digital currency by as early as next year.
That plan — which includes an independent, not-for-profit governing entity based in Geneva, Switzerland called the Libra Association — is “as loud an announcement of entry into Fintech as you will find,” said Lex Sokolin, global fintech co-head at blockchain technology company ConsenSys.
“The incumbents in the banking industry rightly stand to lose both marketshare and future market opportunity as a result of this move,” he said in an email.
Libra, the planned cryptocurrency, is to be a “stable currency built on a secure and stable open-source blockchain, backed by a reserve of real assets, and governed by an independent association,” according to a white paper released by the Libra Association.
But the vision also includes “more access to better, cheaper, and open financial services,” and backing from companies like Mastercard and Uber Technologies Inc.
“We believe that collaborating and innovating with the financial sector, including regulators and experts across a variety of industries, is the only way to ensure that a sustainable, secure and trusted framework underpins this new system,” the white paper added. “And this approach can deliver a giant leap forward toward a lower-cost, more accessible, more connected global financial system.”
Traditional lenders have cautiously embraced big tech, which is a significant source of customers and consumer data, but also a cause for concern due to the possibility that the banks will be elbowed aside by new players in the financial system.
There is risk to reputation as well, as big-tech companies face renewed scrutiny from governments and regulators over competition and privacy concerns.
In April, following Apple Inc.’s announcement of a credit card with Goldman Sachs Group Inc., TD president and chief executive Bharat Masrani was asked about the possibility of a similar big tech-big bank partnership. The CEO responded that partnerships are not a new thing for the bank, which is a card issuer in the U.S. for retailers Nordstrom Inc. and Target Corp.
“Any opportunity, if they were to present themselves, we would look at it,” Masrani told reporters following TD’s annual meeting of shareholders. “And (it) depends on which market, what’s the positioning, what kind of partner do we have — because our brand is also exposed there, and that’s important to us — what kind of risks are acceptable.”
While the target of Facebook’s payments plan may actually be more along the lines of Chinese financial-technology giants such as Ant Financial Services Group and its Alipay platform, Sokolin said banks may be prompted to join in the crypto-endeavour.
“I expect that many of them, if the initiative at least appears to be successful, may want to become nodes in the network to sustain the cryptocurrency,” he said. “The fact that traditional financial institutions are not leading something like this, and instead it is being built by Silicon Valley, tells a powerful story about who can take advantage of frontier technology.”
Copyright Postmedia Network Inc., 2019