The news: EQ Bank launched a banking platform for small businesses, according to fintech.ca. It includes a business checking account with no monthly fees or minimum balance, many types of transactions for free, up to 10 sub-accounts, and Canadian customer support.

Why it matters: EQ Bank, a subsidiary of Equitable Bank, is a Canadian digital-only bank launched in 2016. It has built a reputation for direct banking services delivered at a low cost and accounts with high yields relative to competitors’.

EQ Bank’s small-business value proposition is straight from the direct-banking playbook: High rates and low or no fees, enabled by a low cost base. This platform helps EQ Bank diversify beyond its focus on consumer banking and gives the bank a chance to capture some of Canada’s 1.07 million small businesses—plus the 5.8 million Canadians who work for small businesses.

The challenge: The Canadian banking market is hard to crack. EQ Bank’s parent, Equitable Bank, is small relative to its competitors’ parent companies: It ranks eighth on the list of Canada’s largest banks. EQ competes directly with digital-only bank Tangerine (a direct bank owned by Scotiabank) and Simplii Financial (a division of CIBC).

The gap between Equitable Bank and the “Big Five” Canadian banks is huge.

• As of 2024, Equitable Bank had C$54.07 billion ($39.46 billion) in assets, while Scotiabank and CIBC had C$1.40 trillion ($1.022 trillion) and C$1.02 trillion ($744.3 billion) in assets.
• The other three “Big Five,” RBC, TD Bank, and BMO all have in excess of C$1 trillion.

The Canadian banking market’s concentration reduces competition, according to Carolyn Rogers, senior deputy governor of Canada's central bank. The “Big Five” have an approximately 91.7% market share by assets. The US looks much much more diversified by comparison: The top five in the US have $10.7 trillion in assets out of a total of $24.48 trillion—but that’s roughly 43.7% of the total.

Our take: EQ Bank has created a huge opportunity for itself given the size of Canada’s addressable market for small businesses. Going head to head with Canada's large banks would be challenging, but small business services from a direct bank are compelling play: CIBC’s Simplii does not offer small business banking and Tangerine’s are limited.