Wealth, insurance, and cards become the new weapons against Big Six control
Canada’s banking oligopoly is starting to feel real competitive heat from below, as small and mid-sized players pivot hard into fee income, cards, and partnerships to narrow the gap with the Big Six.
A new Morningstar DBRS report cited by the Financial Post finds smaller Canadian lenders have increased their reliance on non-interest income over the past five years.
They have done this by expanding wealth and insurance offerings, widening access to credit cards and testing new deposit products to manage economic uncertainty, and rising competition.
Morningstar DBRS vice-president Jiani Wu told the Financial Post that market uncertainty and possible rate changes make stable fee-based income increasingly important.
She said a softer housing market can slow lending and push borrowers to be far choosier about their next mortgage provider, squeezing net interest income and making a shift towards fee revenue critical to keep institutions “robust and resilient.”
The numbers underline how far smaller players still have to go.
The Post reports that nearly half of Big Six revenue comes from non-interest income, compared with about 25 percent for credit unions and 18 percent for mid-sized banks, based on six credit unions and three mid-tier lenders, including Laurentian Bank of Canada, EQB Inc. and Fairstone Bank of Canada.
Executives at those smaller institutions want to close that gap by offering a “complete suite of products,” including wealth management and mortgage lending, so customers are less likely to move, Wu told the Post.
Many clients prefer to keep “all their banking services at a single firm,” she said.
She also pointed out that in some remote or underserved communities, including certain First Nations, credit unions may be the only option and that “for them to have more products, more choices, that’s also extremely helpful.”
Even with that push, the Big Six still dominate key profit pools.
Morningstar data cited by the Post show the largest banks control about 73 percent of Canadian mortgages, and Wu said rising competition from smaller lenders will not materially change their overall market power.
Policy makers are trying to tilt the field, at least at the margin.
The Post reported that Ottawa’s latest budget aims to spur competition by cutting fees and making it simpler for consumers to move chequing accounts, with the goal of helping alternative institutions outside the Big Six grow.
EQ Bank sits at the centre of that competitive story.
In February, BNN Bloomberg reported that EQ, Canada’s seventh-largest bank, has no branches, credit cards or wealth management arm and that 80 to 90 percent of Canadians are unfamiliar with the brand.
Chief executive Chadwick Westlake, who took over in August, has moved quickly with what he called a “transformational” deal to acquire PC Financial, announced in December.
According to BNN Bloomberg, the bank plans to buy the PC Mastercard portfolio and PC Money accounts and partner with Loblaw Cos. Ltd. and the PC Optimum loyalty program, which would put EQ Bank’s yellow branding into thousands of grocery stores and ATMs nationwide.
Westlake said this transaction was a “top priority” because he believes it is “the key to creating a scaled significant challenger for Canada” and added, “There’s no deal like this.”
BNN Bloomberg reported that EQ does not intend to build a traditional branch network.
Instead, it may expand its roughly 180 in-store pavilions to keep costs down and avoid vaults and cash handling.
Westlake also pushed through layoffs that cut about eight percent of staff last fall after expenses crept higher, saying it is important for the bank to operate “very efficiently.”
On the risk side, the outlet noted that EQB is more exposed to the mortgage market than the Big Six and has leaned into alternative mortgages for clients such as the self-employed.
In its latest quarter, loans flagged as concerning increased and provisions for credit losses rose.
Scotiabank analyst Mike Rizvanovic described this as “material credit deterioration that was evident across its loan portfolio.”
He also cautioned that the PC Financial deal could make EQ more sensitive to future credit cycles, given PC’s card loss history relative to larger banks, while Westlake argued that PC cards sit about mid-pack and said alternative borrowers can be resilient in downturns.
Views on the transaction remain split.
According to the outlet, Rizvanovic acknowledged that the deal diversifies revenue, could be “transformative” for EQ’s deposit franchise and offers strong card growth potential, even if he does not see it as a straightforward win.
BMO analyst Étienne Ricard took a more upbeat stance, raising his target on EQB to $130 from $108 and calling the deal “strategically enhancing,” with diversification and cross-sell opportunities.
The PC acquisition still leaves a major hole: EQ Bank lacks wealth management capabilities such as trading and advisory.
Westlake told BNN Bloomberg the bank is actively searching for a partner or acquisition to fill that gap, saying, “This is similar to the PC deal, where my view is you can’t build it.”
That institutional strategy sits alongside a policy push.
Reuters reported that Westlake said EQB is pressing Ottawa to accelerate promised changes in the 2025–2026 budget to strengthen competition, lower fees, make switching banks easier, reduce regulatory burdens for smaller lenders, and introduce open banking or consumer-driven banking.
He told Reuters that “Canada needs to compete with a greater sense of urgency to improve productivity, to evolve away from complacency,” and argued that if smaller banks receive similar capital treatment to the Big Six, they can direct more money to commercial clients, small business owners, and Canadians.
