Wealthsimple Unveils Credit Card, Credit Lines to Rival Big Banks

Wealthsimple Inc. introduced its first credit card and line of credit on Wednesday, stepping up efforts to confront Canada's central banks.

The expansion also includes the addition of mobile check deposits, wire transfers, and bank drafts to the chequing account, which it debuted in 2020 as part of its push toward a full financial suite similar to that of banks.

Wealthsimple, which began more than a decade ago with an emphasis on automated investment management, has long stated that it does not aim to become a bank. Chief Commercial Officer Paul Teshima confirmed that this remains the case. 

"What we want to do is continue to lean into the fact that because we don't have a banking licence, we can do interesting and different use cases," he told me.

He cited Wealthsimple's agreement with ten banks to hold its clients' accounts, which provides them with up to $1 million in coverage through the Canada Deposit Insurance Corp., as one of the perks. 

Wealthsimple announced new options on Wednesday, including a credit card with 2% cash back and a line of credit with rates as low as 4.45% when it comes by the end of the year.  (The current prime rate is 4.95 %.)

Clients will also be able to send bank drafts to recipients for free, and their Wealthsimple account balances will be accepted as collateral for lines of credit.

However, even as Wealthsimple adds features, it is uncertain how much market share the firm will be able to grab from the Big Six banks, which include RBC, TD, BMO, CIBC, Scotiabank, and National Bank. 

Canadians are known to be wary of leaving the large banks, which hold more than 90% of bank assets under management.

Teshima cited the results of a Wealthsimple-commissioned Angus Reid study, which revealed that a quarter of respondents were unsatisfied with the current banking system and 38% had pondered quitting their big bank in the previous year, as evidence that there is a market for alternatives.

He stated that Wealthsimple has already demonstrated that it is possible to persuade people to relocate their retirement assets, which some had previously been sceptical about. 

"What I think we've shown is that with a lot of investment in technology and working with our clients, we make that process as seamless as possible, and so we're taking a very similar approach with the chequing account."

He anticipates considerable demand for the credit card, which Wealthsimple has quietly rolled out in various phases over the last year, as it is by far the most requested product by clients.

The company has also demonstrated that its combined spending and savings account is in high demand, with around a quarter of its more than three million consumers having already signed up for one. 

Activity in higher-interest accounts has increased in recent years as rates have risen beyond 4%, but Teshima says demand remains even as rates fall.

"When we launched our high-interest chequing account, it was a huge driver of new clients and deposits for us in the billions, and so we see it as a big demand, and even though interest rates are lower, I still think the clients care," according to him.

"Chequing is the foundation, but then you can quickly move it seamlessly to wherever you want to get a higher yield, is the beauty of having sort of one platform together." 

The portfolio of products "meaningfully challenges the status quo in Canadian banking," said Natasha Macmillan, Ratehub.ca's senior business director of everyday banking, in an email.

She stated that the quick line of credit based on existing assets is a streamlined process often reserved for private banking clients. At the same time, the interest rate on its checking account is significantly higher than what the Big Six banks offer.

According to Macmillan, Wealthsimple's credit card does not outperform category-specific cards; however, it excels in terms of simplicity. Additionally, the planned direct-to-door delivery service for cash and bank drafts is a first in Canada.

"It reflects Wealthsimple's push to rethink convenience in a digital-first model, though its effectiveness and scalability beyond the GTA and other major urban centres will be interesting to watch."