The Canadian Banks Are Not Working For You

From a shareholders perspective, the Canadian banks have been one of the safest and strongest performers in recent history. They were able to glide through the global economic downturn with relative ease, and continue to deliver exceptional returns each year.

From a customer perspective, the Canadian banks are pushing their borrowers deeper and deeper into debt. Canadians are now carrying record high consumer debt, often paying 20% interest rates on their credit card balance, while the big five banks’ profits have ballooned, eclipsing over $30 billion in 2014. Think there’s a relation between the continuing household debt with the Banks increasing profits?

Big Five Banks Profits vs. Consumer Non-Mortgage Debt

This lack of customer care has made the Canadian banks susceptible to technology disruptors.

Kevin Sandhu, CEO of Grouplend, recognized this in late 2012 when he came up with the concept of a technology enabled, data-driven platform that could improve the speed, convenience, and costs for Canadians looking to borrow money.

Why should someone with decent credit have to pay 20% interest rates on their credit card? Sandhu started the company with the belief Canadians needed a cheaper option to access credit, and by removing a lot of the costly overhead, legacy costs, deposit requirements, and other inefficiencies of the Canadian banks.

By using Grouplend to obtain a loan, with rates starting at 6.3%, averaging around 11.5%, and never going as high as a credit card, Canadians will save thousands of dollars on their debt.

Sandhu mentions, being the first company in Canada to offer this cheaper service gives a great advantage as Grouplend continues to educate Canadians about this new industry, but it’s hardly a reason to stop innovating. He maintained that being a new financial service in Canada, Grouplend had to create a way for people to understand all of their credit options without any commitments or requirements.

Canadians have long been discouraged for shopping around for loans and other credit products, as each credit inquiry potentially lowers a consumer’s credit score. Grouplend was steadfast in creating an application process where the applicant can obtain an instant personalized quote without affecting their credit score.

“Worst case scenario, someone loses 120 seconds of their life when they apply for a loan with Grouplend,” says Sandhu.

Grouplend continues to prove the banks’ archaic systems are no longer in touch with the Canadian market by moving beyond traditional underwriting metrics. Grouplend has taken the position that people are much more than just a 3-digit credit score. Their technology and proprietary algorithms analyze data points beyond just a credit report to get a fuller picture of who an individual is. Using this method, the company is able to offer borrowers personalized interest rates.

If the banks are the newest industry ripe for disruption, how far will this go?

Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate.

In the future, will the worlds largest bank hold no money?


Are You Guilty of Misplaced Frugality?

Let’s start things off with a story about a former boss of mine, a small business owner who was just trying to make ends meet.

He knew I was a fellow cheapskate, so he’d tell me all about the things he’d do to save a buck. He would add water to the liquid hand soap in the bathroom. He bought desks and chairs from businesses that went under. He insisted on a scrap paper pile that people could use for notes, rather than throwing it out. We each had a long-distance code; those who made too many calls on the company dime were reprimanded.

He didn’t stop with just office supplies. He constantly would ask ladies around the office if his clothes were nice — not to brag, but to make sure his thrift store finds were presentable. Whenever he’d find a deal on something, he’d excitedly tell all of us. It got so we started to (good-naturedly, of course) kind of make fun of him about it.

Most of the reason why we made fun of him is because his frugality was obviously misplaced. He’d worry about bathroom supplies while driving a leased luxury vehicle. He stressed about recycling while spending thousands per year on the latest electronic gadgets. His life was a constant whirlwind of restaurants, travel, and activity, all of which cost a lot more than a few long-distance calls.

It was a classic example of caring too much about the little things while the big things pile up.

Don’t fall victim to misplaced frugality

For lack of a better term, I’m going to call my former boss’s inability to focus on his big expenses misplaced frugality.

It isn’t just him that’s guilty of it. There are thousands just like him, willing to crunch the numbers on things like furnace efficiency, stove warm-up times, or the optimal placement of food in the refrigerator, while ignoring huge other potential problems.

Your biggest expenses are likely shelter and your vehicle. If you can find a way to save 20% on those two things, you’re on your way to saving close to 10% of your total income.

Yeah, I know that it’s tough to cut major things. You probably like where you live, or else you wouldn’t live there. And everyone has a car payment, right? You’re just doing what everyone else does.

Okay, but keep in mind it’s gonna cost you.

Say you currently live an hour drive from work, commuting each day because you were attracted to the extra space you could afford in the suburbs. The extra gas alone adds up to $50 per week.

We can’t stop there. How much is two extra hours worth every day? That adds up to ten more hours per week. Suddenly, a job that pays $25 per hour worked really only pays $20. Add on additional wear and tear on your car, and we’re looking at a number closer to $18 per hour.

By cutting down your commute from an hour to ten minutes, you’re looking at increasing your wage by an easy $5 per hour. Does it really sound like such a big change now?

Spend money to make money

The other mistake I constantly see people make is refusing to spend money to make money.

Bank fees are the prime example of this. In both Canada and the U.S., options exist so the average consumer can avoid bank fees. The most common solutions are to leave a certain minimum in an account (usually $5,000), or switch to an online-only account. That’s all fine and good, but it neglects the relationship you can build up with your local bank.

By just asking my bank, I’ve gotten better GIC rates and qualified for a mortgage that another lender probably wouldn’t have agreed to. I’ve received a second opinion on investments, and once had a $30 NSF charge reversed because they realized I kept the funds for the cheque in the wrong account.

I’ll gladly pay $5 per month in exchange for all that. Over the years, I’ve easily saved enough to justify paying the fees. Besides, I value having a relationship with my bank, and I think many of you reading should too.

A smart consumer questions every expense. But in the scheme of things, some are important and some aren’t. Cut the big ones first, and then move onto the small ones. Yes, I know the small ones are easy, but ultimately they don’t really make much difference. Misplaced frugality could be your downfall.