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Koho seeks bank license, challenging and disrupting with healthy rivalry.

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TLDR:

  • Toronto-based challenger bank Koho Financial is pursuing a Schedule 1 banking license to bring more competition to the Canadian banking industry.
  • Koho aims to gain control of its own infrastructure and build better deposit and lending products by securing a banking license.
  • The company has entered the second phase of the licensing process and has added ex-Tangerine Bank CEO Peter Aceto to its leadership team to lead the banking division.
  • Koho already provides a range of bank-like offerings and has reached one million users and a $100 million CAD run rate.
  • If successful, a banking license would allow Koho to pay higher savings rates and lower borrowing costs.
  • Koho hopes its pursuit of a banking license will open up the Canadian banking market, which has been described as “deeply uncompetitive.”

In Pursuit of a Banking License

Toronto-based challenger bank Koho Financial has been working quietly with regulators for over two years to obtain a Schedule 1 banking license. The license would allow Koho to compete with Canada’s six largest banks and innovate at an infrastructure level. Koho’s founder and CEO, Daniel Eberhard, argues that the Canadian banking market has been “deeply uncompetitive” for a long time and gaining a banking license would open up new opportunities for the company.

The Three-Stage Process

Koho is currently in the second phase of the three-stage process to obtain a Canadian banking license. The process requires final approval from the Office of the Superintendent of Financial Institutions and the Minister of Finance. To aid its efforts, Koho has brought on ex-Tangerine Bank CEO Peter Aceto to lead its banking division once it is fully established and regulated. Aceto led Tangerine Bank through its early formation and acquisition by Scotiabank.

The Benefits of a Banking License

Koho already provides a variety of bank-like products and services, but a banking license would remove limitations associated with third-party partnerships. Eberhard believes that a banking license would open up new revenue streams for Koho and allow the company to pay higher savings rates and lower borrowing costs for its users. Koho’s pursuit of a banking license signals its desire to be a vocal proponent for a more competitive banking market in Canada.

Next Steps

Securing a banking license is a long and difficult process that could still take Koho another two years or more. The company acknowledges that there is no guarantee of success and that it could choose to walk away from the process if it proves detrimental to its business. However, Eberhard is optimistic about the potential impact of a banking license and believes that it would allow Koho to control its own destiny and shape the future of the Canadian banking industry.

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