How open banking could get you a better mortgage deal
When we think of mortgage competition, we often think of smaller lenders nipping at the big boys’ ankles like angry chihuahuas. That’s happening to a small degree, but there’s something else brewing below the surface that will have an even bigger impact on your future mortgage: open banking.
Open banking will let bank competitors access your financial data in a few easy, highly secure steps. With a few clicks, you’ll find the best interest rates and move your money to those institutions at lightning speed.
This is a seismic disruption on all sorts of levels — including mortgage lending — and here’s why:
Unlike the U.S., where securitization — i.e., pooling of mortgages and selling them to investors — funds roughly two thirds of mortgages, in Canada, it’s the opposite. Deposits account for about two out of three dollars used to fund mortgages in this country, and the Big Five Banks are dominant in that department. They control 90 per cent of bank deposits.
Anything that threatens their deposit base is a critical risk, and that’s exactly what open banking does. Big Banks’ worst nightmare is their own customers waking up to better options.
Indeed, if consumers can give permission to financial providers to find them better offers and then move money to those institutions instantly, they’re less likely to leave their cash rotting with major banks that underperform competitors on advertised deposit rates.
And people want to bank online. It’s largely why, despite explosive population growth, banks shuttered 215 branches in the last five years, according to Canadian Bankers Association data.
One of the biggest threatsto our megabanks comes from high-interest day-to-day banking, where challengers like WealthSimple and small banks
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