My Opinion: Alternatives To Banks

The 6 largest banks in Canada are:

• Royal Bank of Canada (RBC)
• Toronto-Dominion Bank (TD)
• Scotiabank
• Bank of Montreal (BMO)
• Canadian Imperial Bank of Commerce (CIBC)
• National Bank of Canada

Are you fed up with your current bank and plan to switch to one of the others? Would you find satisfaction by switching banks? If not, is there another alternative or are we stuck with the big guys? Luckily for you, there are other banking alternatives. 

Credit Unions

Your first option is credit unions. What makes them unique is the fact that they are usually local and are owned by their members. You may need to qualify through a credit check, referral or a membership fee to open an account but it's a small inconvenience if you're looking to get away from the big banks. You can find similar services like opening accounts, credit cards, loans, mortgages and even investments at credit unions. Credit unions may lack some services like having their own brokerage account to trade stocks because they are smaller relative to the banks. However, they're still a great option to consider. Here's a quick list of the pros and cons to help you decide:

Pros:

• They are known for their higher quality of customer service and lower fees
• They offer similar services to traditional banks
• Credit unions are usually non-profit organizations 

Cons:

• Products and services may not be as competitive as the banks (credit card options are limited or loans may have higher interest rates)
• Branches are not located nation-wide (credit unions are usually local and their branches aren't found in other cities or provinces)

Online Banks

This option is more popular for those who want to manage their own personal finances. Online banks do not have a physical presence so there are no branches you can visit for direct support. Their main advantage is the increased savings rate to their customers because they don't have to pay the costs for running a physical branch. All financial applications are done online and it is up to you to correctly input all the information. They are similar to credit unions in regards to having regular banking services. However, they too may lack the full level of products and services that the banks offer. Some online banks are owned by the big banks as a subsidiary and share their ATM network. This means you can use the big bank's ATMs without being charged a fee. Here's a quick list of their pros and cons:

Pros:

• Great for people who want to manage their personal finances
• Offers competitive and similar banking services as traditional banks
• Increased savings rates on their accounts
• Lower and fewer fees compared to traditional banks

Cons:

• No physical location for support is available (Must call their support line which can take a long time)
• Quick access to your money may be more difficult (Some online banks do not use a debit card, so you cannot access your money without transferring to one that does)
• Cannot deposit coins, only paper bills at ATMs

Financial Technology

This last option is fairly new and I'm not quite sure where it will go just yet. It's an interesting time and things will continue to evolve in the future. There are companies out there that are trying to step into the financial services area to compete with the large banks. As far as I can see, there currently isn't a single company that can offer all the full services a bank can. In Canada, Wealthsimple is probably the closest alternative to offering almost all the products and services that the banks do. They are still lacking in a majority of areas but that might change in the future.

I also remember reading about an article where Google might be interested in becoming a new player. Google is a well-known brand around the world. It already provides access to vast amounts of information so if Google opened their own brokerage account, I'm sure it would instantly become a hit. Other large companies like Apple have already begun entering the market by introducing their own products. Did you know that Apple has their own credit card? This is currently limited to only US citizens but it is a possibility that it may expand to other countries in the future.

Which Option is Best?

There is no solution that works for everyone because your individual needs are all different. If you're looking for something local and want a higher quality of customer service then credit unions are your best bet. If you're financially savvy and want to save on fees, then the online route is for you. Honestly, I'm very interested in seeing where financial technology will lead us in the future. I actually hope most of you will become knowledgable enough to go the online banking route to help you save on fees by managing your own finances.

The banks have been around for a long time but whether they remain competitive in the future remains to be seen. It's not about who did it first but who does it the best. Will a new startup take over or will one of the big players continue to dominate the industry?