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Wealthsimple first FinTech startup approved by Bank of Canada for direct settlement

The approval will give Wealthsimple direct access to Real-Time Rail.

Wealthsimple has become the first non-bank or credit union to be approved by the Bank of Canada for a direct settlement account.

This means that the FinTech startup will not have to rely on a third-party financial institution to process transactions when Real-Time Rail (RTR) launches in Canada, as it will have direct access.

“Approval is monumental for our business but beyond that, will change the landscape of financial services in Canada,” wrote Wealthsimple CEO Michael Katchen in a LinkedIn post published Tuesday morning. “This decision helps level the playing field with incumbents.”

Wealthsimple’s new approval for direct settlement could prove to be a great boon for its super app as the company looks to provide all the services of a bank without being a bank.

“It means we’ll be able to keep innovating and delivering on projects we have long imagined will improve the everyday lives of the over 2.5 million Canadians we serve today. Things like instant wage disbursement and instant bill pay.”

FinTech startups have long awaited the arrival of RTR, calling it a necessary development for financial services innovation and competition in the country. However, last week it was revealed that Payments Canada has delayed the launch of the forthcoming RTR payment system, saying it needs more time to validate and test the system’s components and end-to-end integration.

Industry stakeholders that BetaKit spoke with called the delay “disappointing” but also “not a surprise.”

In anticipation of the new system, Wealthsimple had applied for a settlement account with the Bank of Canada.

Announcing the Bank of Canada approval, Katchen added that Wealthsimple is “ready to do our part to bring the Real-Time-Rail payment system to Canadians as soon as possible.”

Wealthsimple’s approval follows a trend of the FinTech startup working with standards bodies as it builds its financial services suite to compete with the Big Banks: Wealthsimple was one of the first companies to receive an exemption for its crypto offering. Denoting that effort to work with standards bodies, Wealthsimple’s chief compliance officer was named to the member advisory council of Payments Canada, which is in charge of implementing the new RTRs as well as upholding the standards of Canada’s overall payment system.

“We have a strong track record of collaboration with regulators across our registered entities, robust compliance and risk management practices,” said Katchen in an emailed statement to BetaKit.

While the direct settlement approval is a notable step forward for Wealthsimple, the question remains where other Canadian FinTech startups stand. Speaking about the delay of RTR, Koho CEO Daniel Eberhard said “what is happening in Canada not normal.”

“The banks are acting in a manner that is completely consistent with their incentives, which is to do nothing,” he added regarding the RTR delay. “Unless we’re willing to hold our banks accountable via real dates with fines and penalties, nothing is going to change.”

RELATED: Class action lawsuit filed against Wealthsimple, Shakepay over alleged misleading crypto trading fees

Katchen also spoke to the need for innovation and movement on RTR last month wrote in another LinkedIn post: “When we look to our peers in the UK, the Central Bank made the decision to allow non-bank payment companies direct access to the payment system, resulting in an explosion of fintech services. They saw a new generation of challenger banks rise up offering better and more affordable products, like transformative international money transfer services. It forced dominant incumbents to make their service offerings more competitive, and gave consumers access to more choice and lower fees.”

Wealthsimple’s new approval for direct settlement could prove to be a great boon for its super app as the company looks to provide all the services of a bank without being a bank.

However, Wealthsimple’s chief compliance officer of payments, Hanna Zaidi, who sits on Payment Canada’s member advisory council, noted that the benefits Wealthsimple hopes to see from its direct settlement approval can only be realized once RTR is live.

Despite the progress, Wealthsimple hasn’t been immune to the struggles faced by many FinTech startups across Canada and North America more broadly. In June, Wealthsimple joined a growing league of companies making layoffs amid the market downturn.

Speaking to Wealthsimple’s recent approval, Katchen told BetaKit that Wealthsimple is “committed to continuing to closely collaborate with regulators to keep pushing the industry forward.” He called the Bank of Canada approval, “a great step in the right direction,” but noted that “Canada still has far to go in creating a truly competitive and innovative financial services industry.”

When asked about whether Wealthsimple has or is looking to pursue a banking license, which would mean it does not have to rely on any third-party financial institutions for its products, Katchen said, “Our goal isn’t to become a bank, it’s to become the primary, trusted money relationship in our clients lives. Doing that will probably mean a new model for financial services that’s never existed before.”

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