Online consumer lending: Everyone wants to lend you money, even the Post Office

Nowadays, it seems like everyone is getting into online consumer lending. An example of the proliferation of this kind of lending is Canada Post’s recent entry to the market. You read that correctly — Canada Post is now offering unsecured, consumer loans through its MyMoney Loan program. While the program was initially launched as a pilot program in Nova Scotia a year ago, Canada Post has since expanded the program, as of September 12, 2022, to provide nationwide service.

The loans offered by Canada Post are made through a partnership between Canada Post and TD Bank which provides loans of between $1,000 and $30,000 and bear interest at a fixed or variable rate. Applicants can apply for a loan online via the Canada Post website. In order to be eligible for a loan, applicants must be Canadian citizens or permanent residents, have a personal annual income of at least $1,000, be of the age of majority, not have been bankrupt in the last 24 months, and have a valid chequing or savings account with a Canadian financial institution. A requirement of the loans is that they may only be used for the applicants’ personal use and benefit.

Online consumer lending, like the loans offered through the Canada Post MyMoney Loan program, provide consumers with access to credit that they might not otherwise have.  For example, those consumers who live in remote areas do not have easy access to “brick-and-mortar” bank and credit unions.

Not surprisingly, against the backdrop of increasing online everything, there has been rapid growth of online lending platforms. This is due to, among other things, advances in digital products and financial technologies (“FinTech”).

FinTech consumer lending: The past and the present

While the use of technology in the world of finance can be traced back to as early as the 19^th century when the first electronic fund transfer system utilized telegraphs and Morse Code, today FinTech has transformed into technology which allows customers to access financial services through web-based applications and smart phones.

The driving force in the evolution of FinTech has been the use of technology to make banking easier for customers.  The ease of the consumer’s interface with FinTech, whereby banking can be completed with the click of a mouse through one integrated platform, is one of its major strengths.

Covid-19 triggered further digitalization of the financial sector. Covid-19 lockdown measures which restricted physical interactions and person-to-person meetings, lead to the need for consumers to arrange their financial needs online. In fact, according to the Smarter Loans’ Canada FinTech Lending Study 2022, nearly 70 percent of Canadians manage more of their finances online now as compared to their pre-pandemic habits. Not only are more finances now being managed online, but borrowers are also educating themselves via social media and online resources in order to make financial decisions. Therefore, not only has the ability to borrow moved online, but also the decision making process of which lender to borrow from. The speed at which loans are issued has also accelerated; over 50 percent of personal loans are now being issued the same day as they are applied for.

Two is better than one: Partnerships in FinTech

Like the MyMoney program offered through the Canada Post and TD Bank partnership, many entrants to the market do not do so alone. For FinTech companies, partnering with banks offers access to an already established client base that can be leveraged to roll out new financial products. For FinTechs, collaborating with a bank lends credibility to the FinTech company and allows easier access to higher capital investment. These relationships are often found to be mutually beneficial because they allow for each company to benefit from the know-how of the other, while providing customers with a seamless digital experience.

Competitive marketplace

Canada Post is by no means the first company to enter into the online FinTech consumer lending market in Canada. In 2016, Canadian Imperial Bank of Commerce (“CIBC”) launched its partnership with Borrowell to offer personal loans online with low rates of interest, through its “one click” online loan program. In fact, it was among the first partnerships with a major Canadian bank to offer online personal lending to clients.

Another entrant in this space is Neo-Financial. Neo-Financial was founded in 2019 with the aim of providing customers with new user-friendly banking technology and products, specifically through an online interface. It is essentially a bank that doubles as a tech company, blurring the boundaries of industry. Its products include a Neo Card, where the customer gets cashback on everyday spending; Neo Money, which provides deposit accounts which earn a high rate of interest; Neo Invest, which is advertised as Canada’s first actively managed, fully-digital investment vehicle; and Neo Mortgage. All of these products can be accessed online.

There are many other FinTech companies that operate in Canada and offer online lending. Some of these include Easy Financial, Symple Loans, Fairstone, SkyCap Financial, and Lamina Brokers, to name a few.

How FinTech is regulated in Canada

With so many entrants into the online Fintech consumer lending market, it becomes important to understand how the industry is regulated. You may be wondering: Can anyone enter this market? And under what circumstances? In Canada, there is no single regulatory body that is charged with regulating FinTech. In fact, the matter of ‎regulation is dependant on the type of product that is provided by the FinTech business. The result is that various regulators and ‎government agencies are responsible for oversight. It is important to note here that banks are subject to a separate, detailed regime pursuant to the federal Bank Act and overseen by the Office of the Superintendent of Financial Institutions. 

Consumer protection

The most important regulatory requirement for online consumer lending is provincial consumer protection legislation. Consumer protection legislation regulates various aspects of the relationship between lenders and consumers by imposing rules on lenders’ activities and providing rights and remedies to consumers.  This legislation also prohibits unfair and deceptive practices and provides remedies for breaches of the legislation. In Ontario, the applicable legislation is the Consumer Protection Act (Ontario) (“CPA”).  Laws involving privacy and data protection are also relevant for FinTech companies who engage in online lending.

Part VII of the CPA governs credit agreements. Provisions in this Part of the CPA include mandatory ‎disclosure obligations on the part of the lender to the consumer. Part ‎VII of the Ontario Regulation 17/05 provides further detail as to the specific items of disclosure that are required. These obligations apply to lenders for fixed and open credit, as well as credit ‎cards.

Anti-money laundering regime

Another piece of legislation that may be relevant for FinTech lenders is the federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act. This legislation requires reporting entities — which includes money services businesses and other designated entities — to adhere to the ‎know-you-customer (“KYC”) requirements that are imposed by the legislation, keep records on clients and report suspicious activity to the Financial Transactions and Reports Analysis Centre of Canada (“FINTRAC”), among other obligations‎.

The future of FinTech

As more Canadians look to online resources to manage their financial affairs, the use and amount of online FinTech consumer lending will continue to accelerate. Who will be the next to offer online financing is uncertain, but what is certain is that the online consumer lending market does not appear to be slowing down anytime soon.

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