Wealthsimple is taking on the big banks - and might just surpass them

Globe and Mail

a day ago

Having redefined investing, Wealthsimple has attempted to create the country's best bank account.
It's too early to hand this distinction to Wealthsimple because it hasn't fully introduced all of its new banking features, some of which are gimmicky. But who are Wealthsimple's challengers? Big-bank innovation is an oxymoron, and alternative banking has been slow to take advantage.
A thought for anyone unhappy with their bank account or curious what modern banking can look like: Open a chequing account at Wealthsimple and give it a try. No monthly fees mean no harm done if you don't like it.
Typically, banks are supermarkets selling chequing and savings accounts, mortgages, lines of credit and investments. Wealthsimple comes across like a higher-end retailing experience where all these services interlock in ways that reward loyal clients. The more business you do with the company, the more you receive in interest and the less you pay in fees.
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The Wealthsimple credit card offers unlimited 2-per-cent cash back at a monthly fee of $10, but that fee falls to zero if you have $100,000 or more with the company or you set up direct deposits of paycheques totalling $4,000 or more a month. The card also offers zero foreign-exchange fees, compared with the usual 2.5 per cent charged by other cards on purchases outside Canada.
The Wealthsimple line of credit, set to arrive by year's end, will let you instantly borrow at rates as low as 4.45 per cent. The amount you can borrow is tied to your level of savings and investments with the company – in other words, how much collateral you have. Rates for a home equity line of credit, which can cost hundreds to set up, start around 5 per cent these days.
The no-fee chequing account from Wealthsimple offers interest with a base rate of 1.75 per cent, a lowball offer in today's market. But there's a boost of half a percentage point if you set up a direct deposit of your paycheque, and you can get as high as 2.75 per cent if you have extensive assets with the company.
Not having a physical branch network allows alternative banks to offer zero-fee chequing and better rates on savings than the big banks. But no other alt bank leans into digital banking like Wealthsimple, while also providing services people usually access through branches.
For example, the company will offer paperless cheques that can be ordered on its app and delivered to the recipient. Cash can be ordered for delivery as well, as can bank drafts. Here we have an example of gimmickry – are there any under-40s in Canada who ever use cheques, or who don't pass a bank machine many times a day?
Another question about these services is pricing. Wealthsimple hasn't firmed up the cost for all of them yet, a reminder that there are always limits to free banking.
A few more novel features of the Wealthsimple chequing account:
Security is obviously on Wealthsimple's mind because the company offers $1-million in deposit insurance through Canada Deposit Insurance Corp. Wealthsimple places deposits at multiple unnamed CDIC-member banks, a workaround for the usual $100,000 coverage limit per eligible account.
Wealthsimple began as a robo-adviser, a business it continues to dominate. Next came self-directed investing on a platform that led the way in offering zero-commission trading of stocks and exchange-traded funds, and fractional trades that allow investors to buy less than a full share.
Wealthsimple is not the best investing platform, and its move to offer private-equity and debt investments suggests unwise trend-chasing. But Canadian investing is more open and inclusive because of Wealthsimple.
On the banking side, there's an expectation that the impending arrival of open banking will spark a wave of innovation and competition. Open banking means bank clients can securely share their information with new apps and alternative financial players.
Obviously, Wealthsimple isn't waiting for the federal government to introduce rules for open banking. It's ramming innovations through at a rate that exceeds what big banks do in 10 years.
Anyone creating a short list of top alternative banks needs to include EQ Bank, which offers 3.5-per-cent interest for now if you direct deposit paycheques of $2,000 a month or more. The base savings rate is just 1.25 per cent. Koho, Neo Financial and PC Financial are also worth a look for banking, while Questrade is on a hot streak as an investing innovator and is expected to get into banking.
What makes Wealthsimple unique is the way it's building a seamless, state-of-the-art financial company that offers everything and rewards clients who take advantage. Ironically, the onetime upstart could turn out to be the next big bank. You should try them.
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