Alex Hong wanted to make the most out of her savings.
An artist who works at OCAD University, Hong had worked hard to pay off her student loans and build up her tax free savings account (TFSA). Her savings were with Simplii Financial, a digital bank owned by CIBC.
Hong did some research and found a TFSA with EQ Bank, another digital bank, that had a higher interest rate. So she opened an account there and requested that Simplii send her funds to EQ.
On March 1, 2021, her life’s savings — $ 32,950 — were withdrawn from her Simplii TFSA.
A month later, the funds still hadn’t landed in Hong’s EQ account.
Later, Hong found out that her life’s savings had been sent on paper, via a bank draft, in regular mail with no tracking. The bank draft appeared to be lost, and with it her money.
“Because of the digital bank you assume that it’s going to be a digital transfer,” said Hong, who was surprised, as well as scared.
“We know that wire transfers exist, and money can be sent digitally, because we do that every day in our life. So why is that not … the process for sending large amounts of money between banks?”
Hong says Simplii told her it would be too expensive to send the draft using registered mail.
What ensued was weeks of confusion for Hong, as she called and emailed both banks to try and figure out what could be done.
She said Simplii told her EQ would need to sign a bond of indemnity nullifying the original bank draft before another one could be sent. But EQ told her that wasn’t their process, she said.
Finally, after weeks in limbo, Hong says Simplii agreed to deposit what she’d lost back into her original TFSA — just as EQ let her know they’d found the missing bank draft.
Even though she got the money back, Hong is shaken by the experience, and puzzled that something seemingly simple could be so prone to error.
“Things getting lost in the mail, it seems like an age-old issue,” she said.
She said she wishes there had been a clear process for both banks to follow instead of the confusion she saw. She’s also concerned that without all the work she put in, nothing would have been resolved.
“I feel like I’m really lucky,” said Hong. “It could have been dragged out for months longer.”
In an email, EQ Bank spokesperson Jessica Kormack said what happened to Hong is unfortunate and infrequent. Kormack said this kind of transaction typically takes six to eight weeks, regardless of which banks are involved.
“That lengthy process, like many things right now, has been complicated by the delays and constraints of operating during the pandemic. Despite those complications, our teams have worked diligently to ensure the customer’s transfer request has been completed,” said Kormack.
She said EQ is working with different financial institutions, including Simplii, to upgrade banking experiences, and said Hong’s experience “will help to improve some of our own processes.” (In an email, Simplii spokesperson Kathryn Lawler said that business has worked with the client and EQ, and the matter is now resolved.)
Janet Gray, an Ottawa-based certified financial planner with Money Coaches Canada, said she thinks what happened to Hong is rare but puzzling, and likely a product of human error.
“I don’t think it mattered that it was a digital bank,” she said.
Jessica Moorhouse, financial educator and host of the More Money podcast, agrees. Moorhouse is a big advocate for digital banks, and said she hopes Hong’s experience doesn’t scare people away from them.
“We are in an increasingly digital world,” said Moorhouse — but she thinks Canadian banking as an industry is slow to adopt new technology.
When trying to resolve a banking issue, Gray recommends always taking notes when speaking to customer service representatives, including writing down names and confirmation numbers. When escalating an issue within the bank doesn’t work, there are several other organizations consumers can turn to, she said.
Fintech expert Jason Pereira, a partner at Woodgate Financial and president of the Financial Planning Association of Canada, also thinks what Hong went through is not specific to digital banks, but rather a systemic issue in Canadian banking. He said Canadian banks send money by mail a lot more often than we think.
“Our payment infrastructure is archaic,” said Pereira. “In a truly digitized banking system, this would have been done without the need for Canada Post … This is not a digital bank issue.”
Christian Clapton, director of Open Banking Initiative Canada, agrees with Pereira that the issue is about the whole industry. Clapton said Canadian banking is restricted by its infrastructure, and added that considering the basic nature of a transaction such as Hong’s, he wonders what other system or process issues exist that we aren’t aware of: “What we’re starting to see is the cracks in the armour.”
Pereira and Clapton are advocates for open banking, which makes it easy for customers to get their financial information and let third parties access it. Open banking is not yet allowed in Canada, said Pereira, and he believes because of that, consumers will continue to be vulnerable to the foibles of old-fashioned methods. (EQ Bank’s president and CEO Andrew Moor is a proponent of open banking.)
Hong’s predicament is a “perfect example” of what open banking could prevent, said Pereira.
“One of the things that makes open banking possible is the establishment of certain infrastructure and protocols,” he said. “Canada is way behind on this … we still don’t have a framework.”
The government has a web page about open banking, after undertaking a review of it in 2018.
It published the results of the first phase of its review in early 2020, proposing that “industry and government collaborate to develop a framework that would enable the safe introduction of open banking in Canada.”
The second phase is focused on data security in financial services, according to a news release from January 2020.