The Canadian Investor - Dealing with Investing Biases and Will Open Banking Increase Competition?
Episode Date: May 13, 2024In this episode, we examine the complex relationship between personal biases and investment decisions. We begin by contemplating the potential pitfalls of being overly familiar with and emotionally in...vested in certain companies. Inspired by Peter Lynch's insights from "One Up on Wall Street," we discuss the dual-edged sword of using personal experiences and observations to gauge a company's market potential. We then answer a listener question on the use of stop limits to protect portfolio investments during times of high market valuations. We provide a comprehensive overview of different sell limit orders, including stop limit and trailing stop limits, and share insights into their effectiveness and potential drawbacks in real-life scenarios. The episode finishes with Simon talking to Mahima Poddar, Senior Vice-President and Group Head of Personal Banking with EQ Bank. They discuss Canada’s Consumer-Driven Banking Framework that was announced in the Federal government 2024 budget and when Canadians could expect to benefit from open banking. Canada’s Consumer-Drive Banking Framework Tickers of stock discussed: QSR.TO, ASML Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor Spotify - The Canadian Real Estate Investor Web player - The Canadian Real Estate Investor Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.
Transcript
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Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends
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of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger.
The Canadian Investor Podcast, welcome into the show. My name is Brayden Dennis,
as always joined by the wonderful Simon Belanger. And the two of us are absolutely
battling right now. I sound like I smoked a couple packs of darts.
And you are just the proud parent of a daycare child.
So the boys are absolutely battling today.
But we got a good show on the docket today.
I'm going to talk about some bias in investing.
And when is it too much?
When is knowing the company too well become a net
negative? And then we have a listener question that you're going to talk about, which I think
is actually something that we get questions on quite often and I think is a worthwhile topic.
Simone, I just came back from Abu Dhabi. I had never been in the region before.
It was eye-opening a little bit.
Was that a scorching hot place?
Yeah.
I got off the plane.
And so when I'm on a plane, you want to dress warm with the ability to shed layers.
Because you know how in the middle of a flight, it randomly gets freezing?
You realize that the thing's been...
You wake up and the air above you has just been peppering you and randomly gets freezing. Like you realize that the thing's been, you like wake up
and the air above you has just been peppering you and you're freezing. And then all of a sudden,
like it was like, everyone has like a blanket around the middle of the flight. You know what
I mean? Oh yeah. Yeah, I know. I know. Exactly. So it gets so cold in there and then you probably
get out and it's like 40 degrees outside. Yeah. So I'm all bundled up and it was,
I think it was 38 degrees celsius it's like 2
p.m and i think i think it might have touched 40 but it was it was scorching cool place though
yeah does it get cooler at night though like i feel like those kind of desert places tends to
get like really hot at night in the day but then gets cool much faster at night no no okay it's it's hot and then hot without the sun out okay
the fly the fly agrees with you i can see a fly this is going this is mark this down as the fly
episode because there is a fly just all in my my stuff right now so uh our buddy will be joining
joining the sick boys on the show today.
All right, Simon, first topic of the day.
It's meant to be a discussion.
I don't have much to present here.
Open discussion.
And I think that you'll have some thoughts here.
But before that, FinChat V3 is live.
Use code TCI if you want 15% off FinChat.
That is FinChat.io is the company I'm the founder of, company Simone
is an investor in. FinChat.io, use code TCI for 15% off. All right. Bias with companies you know
and love. Is it a net positive or a hurtful bias? And where does that break? So let me set the stage
here, Simone. I struggle with this internally a lot in my mind.
You and I endlessly talk about how important it is to deeply understand companies you know or are
thinking of being a shareholder in so that when the market reaction and sentiment shifts of a
business, you're able to dispel between, is this a long-term fundamental issue or a short-term opportunity?
This is kind of the core of the Peter Lynch one-up on Wall Street book, where individuals can kind
of achieve market-beating returns, create wealth, creating life-changing wealth from buying and
holding companies you know and understand,
that you're intimately familiar with. The idea of a channel check. It's like you're at the mall and you're like, Popeye's chicken has a line out the food court and every other place is empty.
Is there something here that the market's not yet rewarding? Just to use an example.
And I wonder to myself with companies I'm a big fan of,
maybe I'm a customer, maybe I just, I'm in the industry. Am I flying, is there a flying too
close to the sun bias or is this ultimately a net positive where you got to be in the weeds,
you got to understand the business. So do you have any kind of hot takes on this?
I struggle with this personally, internally quite a bit.
on this? I struggle with this personally, internally quite a bit. Yeah, I mean, it's a great question. I'm kind of divided on my sentiment. I do get the sense that, and I mean,
I've battled that personally as well. Sometimes you have a company, you have conviction, and you
kind of, you're a bit biased, right? You essentially dismiss any kind of argument that goes against it.
And I try very hard. And that's always what I'm trying to do is not dismiss those arguments,
actually, you know, that go against my thesis, at least acknowledge them, understand them,
and then make a decision whether they're worthwhile or not. And I think just the comments I see from
people on FinTwit, I don't know if it's the investing population in general, but I think, I don't know, I feel like it can be a detriment for a lot of people.
I mean, I've seen it just in discussions I've had on Twitter for dividend paying stocks, right?
For kind of, you know, companies that everyone knows in Canada.
Canada. And I've noticed that a lot of them, people will just dismiss outright, like glaring data that goes against their thesis because they kind of just rely. I think the typical argument is,
well, historically, they've been good for like 50 years, 100 years, whatever it is. So they'll
be good for the next 20, 30, 40, 50 years. So yeah, I think, I don't know, I'm divided on that
as well. Yeah.
Yeah. It's difficult. And especially when you're like such a fan of the business,
maybe as a customer, right? You're like,
your bias starts to kick in, right? And there's more things at play to being a shareholder and
to generating like high IRRs. You got to pay a reasonable price.
The market has to agree with you.
The business has to continue to execute.
And you could overlook structural issues because you're like, look,
I'm going to buy the product regardless.
And the reality is,
is like you don't represent the market
in terms of their customers.
You're just one customer of potentially thousands
or hundreds of thousands or millions. And so I think it's really important to kind of disseminate
those two. And my final thought here is it is mandatory to, I think table stakes are to know
the company well. I think that we can agree on that. If you use the product,
great. If you know the company inside out, great. If you know about the company and industry
dynamics, because maybe you work in it, wonderful. I think that those things are all really good.
But think hard and be critical and maybe check bias at the door, for lack of a better term.
And ask yourself, because of my involvement in the company or emotion, am I still able to think
critically as an investor? Because anecdotal evidence, while it might be useful, you still
have to be able to think critically as an investor, unemotional, here are the facts,
here are the numbers, here are its prospects, and here are the risks. So I'm torn. I leave this
conversation still torn. And I think my takeaway maybe is it's important and it's table stakes,
but it's a question for you, the listener, to think about that with some of the companies you own as well.
Yeah, and I think I would add to that, also make your own opinion.
I think Apple, the recent quarter, is the best example.
I mean, I was very critical on the episode that was released last Thursday about Apple's results because the markets loved it because they announced $110 billion buyback.
because the markets loved it because they announced $110 billion buyback.
But then you start digging into numbers and it was absolutely not a good quarter by Apple.
Like revenues were down, iPhone sales were down 10%.
Services were up.
It's pretty much the only bright spot that happened.
And I think a lot of investors are blinded by the fact that the stock was up, right?
They haven't even dug into the results and get into the question, okay, like, is this more temporary slowdown for Apple?
Or is there more of a serious question to be asked?
Like, where will the growth medium to long term actually be coming from for Apple?
Obviously, I'm not saying they're going anywhere anytime soon. But I mean, just look at the results over the last five years.
Like the business has, lack of a better word, kind of stalled.
Like it's not like it's growing.
You know, they're buying back shares.
That's great.
But earnings are not really growing.
They're growing per share because they're buying back shares.
What a divisive topic share buybacks can be. It's such an important topic for investors to
have some level of understanding of the business in terms of deciding for yourself if a buyback
makes sense. There's companies that buy back lots of stock and have generated wonderful shareholder
returns as a result of that. And there's some companies that buy back lots of stock and have generated wonderful shareholder returns as a result of that.
And there's some companies that have just outright destroyed value by doing so.
And you're right.
I mean, if the business doesn't grow from here ever, you're not going to have a good time.
You will see eventual multiple compression faster than the company can cannibalize
all the shares yeah from my view even though even though maybe apple is generating gobs and gobs of
cash so it's it's a tough example but you got to have some sort of opinion on that i think no
exactly but i think it was just a good example where people's biases were, I think, positive biases towards Apple were reinforced. And,
you know, all the headlines was like the $110 billion buyback. Obviously, some articles
mentioned the iPhone's decline in sales and so on. But at the very least, if you're a shareholder of
Apple, just to finish there, like, I think there's some, you need to ask yourself, like, where do you think the business is going the next five years? And I
think that's a legitimate question. And I, I personally don't know. I just don't know where
they're going. Yeah. And that's, and that's totally okay. You know, many listeners might
have a strong opinion one way or another, and you don't, so you don't own shares, right? Like,
and you don't, so you don't own shares, right?
Like that's a totally like- I own some through my index funds and my wife.
Yeah, my wife, her portfolio that I manage for her
has some shares.
So I do have some exposure, yeah.
Okay, fair enough.
All right, well, that's good disclosure too.
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information. I think this is actually a wonderful segue into discussing tech broadly in large US tech. And the rationale for that is you mentioned, look, I mean, Apple's got net revenue decline
year over year on the recent quarter, iPhone stagnating, services are up, sure, but it's
tough to grow off this massive base. However, there's a couple of tech companies that are
growing at startup rates. And I want to highlight two segments between them that are just bonkers.
The first one is advertising. So we saw a bit of a 2022 hard comps on the advertising businesses for Google and Meta.
Amazon stayed relatively solid through that time with their advertising business, but
that's coming off a much lower, lower base compared to the giants in digital media like
Meta and Google. So you had a bit of a post-COVID growth hangover through Q1 to Q...
Q1 22 to baby Q1 of 23.
And since then, you've seen a fantastic acceleration.
In the most recent results, you had 14% for Google search at 21% for YouTube year over year,
24% growth for Amazon advertising, and a whopping 27% year over year growth for advertising revenue
coming out of meta. So, you know, reels are popping off, usage is popping off, ARPU's popping off. Usage is popping off. ARPU is popping off.
So things are good for these companies right now,
and they are growing extremely fast.
So I guess that's another counter to the Apple story.
It's like you have these multi-trillion dollar gorillas,
and you got something like Microsoft Azure growing its startup growth rates. It's very, very impressive.
So to go there, you had Azure, Google Cloud, and Amazon Web Services all accelerating again,
in terms of top line revenue growth. Amazon is now a $100 billion run rate business in ARR. So that is
pretty remarkable. So they did 25 million, sorry, sorry, 25 billion in the most recent quarter.
So 100 billion on a run rate, if you multiply that out, growing still exceptionally fast,
albeit of course slower than three, four years ago. I mean, I think multiply that out, growing still exceptionally fast, albeit, of course,
slower than three, four years ago. I mean, I think that that makes sense. But I just wanted
to highlight these companies because, yes, we talk about them a lot, but there are segments
inside of them that just can't seem to be stopped at this point. Where we are going in this economy,
all the catalysts that they have, it seems to me more and more that the big growth drivers in
computing and digitization, they had that CapEx build out in the last 10 years, that was just basically
impossible for anyone else to do. And so you get something like Microsoft, which is probably the
greatest, you know, modern enterprise maybe ever created at this point, just able to build out that CapEx. And now, I mean, things are absolutely humming. They did 4 billion
in revenue on LinkedIn in the quarter. LinkedIn is going to be a $20 billion a year revenue business
inside of Microsoft in the next year or two. Like, this is no joke, man.
These companies are really just, it feels like more of the same going into this decade.
And I'm curious if you have any hot takes on that.
Yeah, I mean, obviously, I think they spend the money and they were not making any money
on those.
So it was definitely a lot of Cappex that didn't really materialize until I
think now they're starting to see that, you know, that come to fruition. I mean, the next decade
will be interesting. There's just so many things that could happen. I think there's so many
different outcomes, even for those companies. I think the one that comes to mind that's a bit of
a wild card is do governments start, you know, putting more pressure on these companies because they're so large?
There's been already cases of that in the U.S.
It's almost impossible now for any of those companies, I guess, with the exception of Microsoft to make acquisitions.
With the exception of Microsoft.
Yeah, they must have a pretty strong lobby in Washington, D.C.
But I think there's that part that's interesting, the whole AI space, how it will evolve, and also the power that it consumes, right?
Where are they going to be sourcing that power?
There's been so much emphasized on getting overall greener power.
We saw the deal that they had with Brookfield Renewable Partners for that.
Did you guys talk about the Brookfield?
Yeah, yeah, we did.
So the 10.5 gigawatts.
So, I mean, there's just a lot of different moving parts.
I mean, Google is also an interesting play.
Will AI kind of disrupt the Google search or will be a complement to that?
You know, what's happening with Google as a whole business, right? There's kind of things
that are coming out that a lot of employees are not super happy now. There's just a lot of different
things going on. I think it could be a lot of the same, like you said, but I think there's just a
bunch of different outcomes that could happen. And I just find it fascinating. Like it's hard
to know where it's going to go. That's my point of view on it. Yeah, it certainly is.
It feels to me like Microsoft is just the easiest long ever right now.
It's just so easy to own.
And I wonder if that's usually a bad signal to me.
Yeah.
But with this one, it's just like an absolute slam dunk.
Of course, you're not going to get world changing
returns at this size but still yeah dan had an interesting uh take for uh google search engine
results because he's well into the seo right search engine optimization for stocktrades.ca
and he knows that stuff well and apparently there's been some big changes and it seems like a lot of people are starting to
say that the results are not as good for um when you search through google because they're trying
to you know you know put the results or the ranking more as a way to like that will help
the revenues with ads so i don't know to what extent that's true or not, but something to keep an eye on because I
was talking with him and I said, look, you know, I go to Google because for the most part, I know
I'm going to get quality. But if at some point I see that quality diminishing, there is enough
options out there. It's not six years ago when it was like being the only other option that was
completely, you was completely terrible.
Now there's enough good options that I think Google has to be really careful how they thread that between maximizing profits and eroding the quality of their search engine.
Yeah, absolutely.
All right, let's kick it off to the last segment here.
Before that, we've been sharing lots of graphs here already on the show.
You can see our beautiful face. You can see the fly that is terrorizing me on the pod here. At join tci.com, we do our
monthly portfolio updates as well as you can see our beautiful faces for radio. You can see I
actually bought a Canadian stock recently in my portfolio and disclose that on join TCI.com.
I'll just say it here on the show.
I am now a shareholder of TerraVest.
Dude, I just got a, as soon as I do stocks on my watch list, I just have to purchase it immediately because I have been so hot on that segment.
And that's not me patting myself on the back
because I haven't always owned all of them.
But this one I did purchase very quickly after.
So I learned to not be such a goof.
And it is already up monster since then.
So that is Terra Vesta Canadian stock.
I'm glad I pulled the trigger because it's already been,
it's already up 25%. I was going to say it's already a five bagger. No. I'm glad I pulled the trigger because it's already been, it's already up 25%.
I was going to say, it's already a five bagger.
No, no, no.
But it is up.
If I compare, if I, you know, if I average this out over the year.
Yeah.
I've done like, you know, if you ever see brokerages, they do that.
You own a stock for like a day and it'll give you like the time weighted
return of
like yeah you've made 10 bajillion percent no no i've never seen that made like 35 bucks and
they're like wow you're a genius i'd be like that's so stupid i would like just kind of even
if i saw it i'd like just move away all right let's move to the last topic of the day here
simone yeah yeah and the last topic because we do have, Simone. Yeah. Yeah. And the last topic, because we do have an
interview coming up. So I did an interview with Mahima Podar, who's the senior vice president of
personal banking with EQ Bank, primarily focused on open banking. Really interesting topic. I did
a lot of research. There's some stuff that came up in the recent budgets. I do encourage everyone
to listen to it. Mahima is great. She's very knowledgeable. So that'll come after this
segment. Now on this segment, it's a question like we alluded to from Thomas. I'll summarize
the question here. He wanted to know our thoughts on using stop limit orders to protect against
losses in our portfolio, especially given that the markets are currently
trading at high multiples. So it's hard to disagree that the market are trading in pretty
high multiples right now, but it doesn't mean that it can't go higher as well. Before I give
my take on this, I'll do a quick overview of the three main types of sell limit orders,
depending on your broker. There might be some variances in terms of what's available and what not I think
wealth simples has only one of these types I don't use it personally but
that's what Dan told me so the first one is a sell limit order so you said this
if you have a certain price in mind at which you want to sell so say you own
shares that's that are $50 you might sell your tell yourself you know what if
it reaches $60 I want want to sell. So in
that case, you'd put a sell limit order at $60. And once it's that, it would execute and sell the
order. The next one on the list here is the stop limit order. With this, you set the price at which
your sell order is activated. So for example, if you own a share of
a company that's trading at $50, you can put a stop price at $45. If it reaches that price,
then your sell order is activated and then converts it to a limit order. So in this example,
you could put a stop price of $45 and a limit of 43. so the $45 would trigger the limit order and it
would be executed as long as the prices and fall below $43 and the last one is
kind of one that moves and that's a trailing stop limit so it's a variation
of the stop limit order it basically adjusts the stop limit order based on how the stock is
performing. So for example, say you have a $50 stock with eight trailing stop limit of $5. So
if the stock doesn't go past $50 and goes down $45, it's activated. Same as the stop limit order
that I just mentioned. However, if the price climbs to $60 for the share, then the
new stop limit is actually adjusted to $55 because there is a $5 trailing stop limit. So that's in a
sense how it works. There are pros and cons for all of this. And then I'll give you a chance,
to kind of give your thoughts on it. Pros and cons. It's good if you want to limit your losses or take some gains off the table.
And I think it's important here to mention some gains off the table.
It doesn't have to be an all or nothing.
You could just set it for part of your position.
You don't have to do for the whole thing.
You could, but you don't have to.
The stop loss helps you protect your downside while benefiting from the upside of a bull market, assuming, of course, that the shares don't drop
beyond your trailing stop loss. If you put this on a high quality company or an index ETF with
the goal of buying at a lower price, it's possible that you sell the share and it dips only momentarily
and never gets back down again,
forcing you to decide whether to rebuy the shares at a higher price and missing out on some gains or not invest in the company or in the ETF at all. And then one of the cons is that it might
actually not work. So I'll take the most obvious example here. Say you put the order on a Bitcoin ETF. Bitcoin is
notoriously volatile and it trades 24-7, whereas the ETFs only trades during the regular hours. So
it's very possible that the price drops quickly by a large amount while the markets are closed
and that the order does not get activated once the markets have opened because
it's actually well below the price that you had set. So this could happen, of course, to stock too,
especially if there's bad earnings released after hours, for example, or bad news when the markets
are closed. So that's another con where the stop limit orders might actually not even work in those situations stop losses are a tool for a game that i do not play
no i mean look i think we talked about this briefly because we we state we saved it for
this episode and and i'll restate my my here, which is know which game you're playing.
So I'll say which game I'm playing, and then we can decide if that's conducive to this kind of
tool, which is stop losses or the three scenarios, how you can use them. The game I am playing is to buy, hold, let compound high quality companies
for as long as I can. And so if my goal is to sell as little as possible, then I'm going to
not set up systems to sell when my winners win or when they temporarily stumble.
Because it's my job to know if that's a long-term structural decline or a short-term issue.
And stocks are crazy volatile.
This is the game you and I sign up for.
Not as much as Bitcoin.
Not as much as Bitcoin.
Yes.
You sign up for that game a little more than I do.
It's an example we've been talking about and I've been using a lot because I still think there will be many case studies written about Mark Zuckerberg and Facebook
in the era of 2021 to 2023, where you had a company worth a trillion dollars, lose 75%
of its value, and then again, reach all time highs 12 months later.
Like that is bizarre and extremely insane. And the whole time the
fundamentals were strong. Yes, the sentiment massively shifted around what he was saying
around spending, around CapEx for the metaverse, around virtual reality headsets that aren't really
panning off. Yet you have this core business in advertising, just chug, chug, chug.
I talked about it at the beginning of the show here. And so if I was a shareholder and I had
the long-term thesis of that chug, chug, chug, and everyone's addicted to their Instagram and
WhatsApp here internationally, and Facebook Blue is just, the boomers absolutely love, by the way.
And so all of these things are quite solid and intact.
And if I had a stop loss instead of thinking, hey, I'm going to continue to buy more and more shares, this is a huge mispricing, I could have made a lot of money.
And so that's the game that I'm trying to play.
If done effectively, I do that version of money. And so that's the game that I'm trying to play. If done effectively, I do that
version of it. If I do it ineffectively, it's like I panic sell when I see a drawdown of 25%,
which by the way, you sign up for when you own individual equities. So I think it's kind of just
like, what game are you signing up for? Which one are you going to be able to play correctly and do
for a really long time and double click correctly and do for a really long time?
And double click on doing it for a really long time because that's the table stakes
to compound for a long time.
Yeah, I mean, for me, I have probably a more nuanced view.
So I think it's a really good tool for traders.
So clearly, if you're trading stocks, yeah, it's a tool you should learn about, know how
to use and use frequently because that's the name of the game there.
I'm definitely more on your end of the spectrum, but I use it.
I see it more as a hedging tool, I would say.
So I use it very rarely.
I think I've used less than five times in the last 10 years.
That's how rarely I use it.
So not very often.
I used it a bit recently on ASML company I used to own.
I had put it around, it was $1,000. And the main reason is I had not necessarily lost conviction
on the actual company, but I just questioned the valuation, which I think is the market is just
seeing everything AI and just pumping everything that's AI right now and disregarding any risk.
And I think there are some major risks with ASML, like there are with Taiwan semiconductors,
like there are for NVIDIA and Apple because of their China exposure. So I kind of used it that
way as I came to the situation where I was sitting on a lot of gains and I just failed to see the upside in probably the next like two to five years for ASML.
That's that's my perception. I could completely be wrong.
And the other way is just, you know, I'm thinking back of my Teladoc days when, you know, valuations were crazy expensive.
And in hindsight is clearly I should have put some stop limit orders on to at least hedge part of it.
And that's why I was getting to earlier is I think it's a good tool, especially if a position becomes like very large and you're starting to get maybe a little bit nervous.
I think it's actually a good tool in those situation where you can put a stop limit loss on, you know, a portion of that position and you still get to enjoy the gains and then kind of cap
your downside for part of your position.
So those are kind of the ways I see it.
But for me, it's more of a hedging tool.
I would say that's it that I use very rarely.
So I'm definitely more on your end of the spectrum, but I do use it from time to time.
Yeah, fair enough.
I mean, they exist for a reason, especially for traders.
It's quite a useful tool.
Yeah, not for me.
No, but it's true.
But I said it, right?
There are pros and cons.
And I think you would agree with some of the cons is you could end up putting one on and then you end up missing out on a lot of gains because you never pulled the trigger back to buy back the company.
And I think that's one of the probably the biggest issues for people yeah i think that just generally i'm very
hesitant i guess that's maybe that's where we differ i'm very hesitant to sell a position
because it may be reaching like overstretched territory that's fair because if i want to own it
i struggle to come up with any sort of game plan on buying it back later
when I think it's, you know, like it's difficult. It's really difficult to pull off correctly.
Yeah.
There's a little bit of luck involved and there's a little bit of
extra work required, I think as well. And so it's not that one method is wrong or right. I'm just
very avert to selling something i
want to still own no business wise no that's and i think that's the main reason i did it for asml
right it's i think i love the technology that did the only ones that they do but i get nervous when
i see like about a third of their revenues coming from China. Like literally, I get nervous. And then you see revenue stalling this year. And that China, it's literally a wild card. And I just,
I don't really understand the market right now. They're kind of, you know, it's like everyone's
concerned about China, but not if you invest in a company that does business in China,
then people kind of forget about the China risk altogether.
business in China, then people kind of forget about the China risk altogether.
And semis is just the Taiwan thing. It's a risk. It may not pan out, like maybe nothing happens,
but I just, my point is that I think the market is just disregarding the risk.
Net bookings are down to 20 billion from 30 billion at the end of 2022 year ending where everyone's kind of sprinting to get that kind of build out that was required. Maybe there's that huge chip
slowdown. You couldn't even get a car because it was just like, sorry, no chips. But that's still
doubled off a base of 2020. So it's like you had this huge run up
and now it's back to still very elevated
and nice growth rate levels.
So time will tell.
I think I'd like to buy more of it.
Yeah.
Time will tell.
Yeah, no, that's it.
But I think that's it for what we had to say today.
I guess, are you okay if I sign off this one?
I know normally you do, but because we
had... Hey, do it. Yeah, we had a great interview, Mahima and I. I do encourage everyone to listen
to it. There's a lot of good information in terms of just understanding what open banking is,
the current situation with our banking system, with the big six Canadian banks. I had a great
discussion. We even touched a little bit on, you know,
CDIC insurance and why it hasn't changed since 2005.
So we'll probably have her back on at some point,
but I think everyone will enjoy the upcoming interview.
Hey, in EQ Bank, I'm speaking at you guys.
Love you guys.
Make business banking available for me as quick as you can. That'd be great. I think that
that's a huge opportunity for you guys. I would be your first power user of it.
Thanks for listening, folks. This is the episode with Simone and Mahima.
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Okay, so I'm here with Mahima Poddar, who is Senior Vice President and Group Head of Personal Banking at
EQ Bank. Mahima, welcome to the podcast. Very excited to have you here and talk a bit about
open banking and bring more awareness. Thank you so much for having me. I'm really
glad to have the platform to talk about open banking.
Yeah. And before we start on open banking, do you want to just give us a quick overview of
what your role is with EQ Bank and how long you've been with them? Absolutely. So I am eight years at Equitable Bank. My role
is personal banking. So any business that touches the end consumer. So we have a large mortgage
business. We do reverse mortgages, lending against life insurance, and most recently a
payments as a service business. And then on the other side of the balance sheet, I manage EQ Bank, which is our direct
to consumer digital platform, which I think is absolutely the best way to bank in Canada.
So I would suggest the audience checks it out.
Yeah, I mean, I think Brayden and I and even Dan, our new co-host as well, like we're big,
big fans of EQ Bank because, yeah, it's so easy to
use. And, you know, it just feels so painful with the big five incumbents. And I'll just say the
big six because I feel like National Bank tends to not be forgotten there. But just how easy it
is with EQ Bank, just opening an account takes minutes compared to, you know, having to go in
person for a lot of the big banks. It's just,
I don't know why, but it's so painful. And to go kind of transition to open banking. So can you
just explain for our listeners what it is, how it's different from the current state, which people
are probably not super familiar, but typically if they are signing up for different services that
will connect with their bank, they'll do something that's called screen scraping. So you want to explain the differences and what the benefits
would be for our listeners and consumers in general? Absolutely. So I'd say simply put,
open banking gives you the ability to share your banking data through secure connections,
which the purpose, as you suggested, is usually to access innovative
financial services. So today in Canada, only you and your bank can access your financial data.
And the reality is that the bank that you're working with actually owns that data. So the big
kind of unlock with open banking is that it gives you the ownership of your actual data and gives you the ability to consent to share that financial data with another financial service provider.
So what this means is that with open banking, you can now use your own banking data for your own benefit.
Today, because we don't have open banking yet, the way that this is happening in Canada is
through screen scraping. So I know most people are not familiar with screen scraping, but over
4 million Canadians are actually engaging in screen scraping to share the data. And so it's
actually quite prevalent. And so what screen scraping involves is you would enter your banking
login information and password so that you're effectively logging into your bank account.
And then the screen scraper is essentially scanning and storing the data elements that you would see on online banking to get the information that you want to share and potentially more information.
and potentially more information. So the challenge with screen scraping is that sharing your password actually breaks the terms and conditions that you have with your bank account. And that can get
quite contentious because if something goes wrong and there's a fraud attack on your bank account,
or somebody gets a hold of your banking credentials, you aren't necessarily going to be
protected by your bank because you've
shared your password and login information through screen scraping. And the other challenge I'd say
with screen scraping is that it's not particularly reliable because obviously this type of technology
is a bit of a hack to get to the information. So banks can try and shut it down and every time the bank on the other end makes a
change to their web pages or the layout or the data structures the screen scraping is likely to
break and so again like not a very reliable way to be sharing information and i guess with open
banking it would just be like a one-stop shop where you'd have like companies that have been credentialed specifically for that.
And you're able to kind of go into their API and then look at different services that might be worthwhile for you, whether it's looking, comparing different credit cards, different budgeting tools, stuff like that.
Am I understanding that correctly?
That's exactly right.
correctly? That's exactly right. So with open banking and an open banking regime,
what you'll likely see is that every bank has to participate in this data sharing and data provision. The connections are through secure APIs and only accredited members of open banking can
participate. So you have the security and standardized framework of sharing information.
security and standardized framework of sharing information. Most of the applications for open banking have been around cost saving measures. So it's usually like a FinTech or innovative
financial services company that comes in and does the cost comparisons for you and will actually do
the switching on your behalf so that you can save money by comparing different accounts
or figuring out what different features are across a whole bunch of different providers.
Okay, no, I think that's a great overview. And speaking of frameworks, so the federal
government released with the budget, the consumer driven banking framework, I guess they use
consumer driven banking as a synonym to open banking there.
And it states in the framework legislation that it will be released in two parts. So the first part being this spring and the second this fall. Have you gotten any concrete day? Because I mean,
I live in Ottawa. So you know, I am very familiar with red tape and how governments,
the wheels of governments can turn very slowly at times. So does EQ Bank
have like a general idea of when these open banking services will start being available
for Canadians? Yeah, so nothing has been formally committed to but the well kind of believed date is
2025. The industry has gone as far to say that it won't be the beginning of 2025, but it'll be 2025.
The other kind of call out for open banking
is that it's going to launch in phases. And so the first phase is around read only so that the data
will be, you'll be able to share it, but you won't be able to write data, for example. And the biggest
part of that is around payments initiation. So the second phase of this is likely to include payments initiation
where the fintech or another entity
that's part of open banking
can actually instigate a transaction on your behalf.
Okay, really interesting.
And I guess for me, the biggest positive here
is just hopefully it's one part of increased competition,
right, in the banking industry in Canada
because I don't think it's any surprise to any Canadian.
I think as a society, I feel like we tend to favor like oligopolies, I will call it,
because there's just a small number of big banks in Canada.
It's very concentrated.
Do you think on the first hand that the adoption will force large banks to actually, you know,
be more competitive themselves?
Because I, you know, I own a business, I bank with one of the large banks for our business,
but it's so painful compared to what I'm, you know, using with EQ Bank. So do you think
open banking will actually force them to, you know, be more competitive and obviously create
some opportunities for new entrants or, well, newer or smaller players like EQ Bank in this space? I think the biggest advantage is going
to be on the ladder. So this idea that new entrants will enter the space because they're
going to have access to create innovative products that just there's no platform for today. I think what you've seen in the UK in particular that's had open banking for many is what's going to cause the bigger banks to
get more competitive and innovative, you could say. One of the biggest wins with open banking
is going to be around access. So for example, you mentioned small businesses. Right now,
there's many small businesses in Canada that don't have access to great credit. What open
banking can do is give alternative lenders or fintechs access to the underlying transaction
data of a small business in a bank account from the bank account. And so now you have much better
information to underwrite a small business on and provide them credit versus relying on a credit score, which
is really the only mechanism that exists in Canada today. So there's going to be quite a
few benefits that should arise from open banking. And as the big banks see these
groups of customers defer, deflect to fintechs and smaller FIs, I think it's inevitable that
they too will get
more competitive and, you know, try and come to market with similar offers.
Yeah, a little less complacent. It's not you saying it. It's me because I, you know,
I've dealt with them from businesses. I'll be honest, it's just very painful. Like it is
literally sometimes you have to like book a half day to like, do something that should probably
take less than 15, 20 minutes.
I 100% agree with you. We've seen the exact same thing. It's small businesses are the
cornerstone of the Canadian economy, but they're so underserved in Canada. So actually, I'm small
on EQ Bank, we've just launched small businesses, sorry, small business banking. And even the notion
of doing 100% digital onboarding is
something that's novel in Canada and doesn't exist. So we're really trying to attack those
pain points that that exists in the market. But unless there's somebody that's starting to eat
away at the market share, which I hope EQ Bank does, the big banks aren't really going to change
the way they're operating because they have these huge legacy tech stacks. And it's
quite expensive to actually move the needle. And then there is a cost of security and your fraud
protections need to be that much stronger when you're fully digital. And so they've got to absorb
those costs as well. That's great. And I guess the last question here I have for you, it's actually a little
different than open banking, but I think it goes hand in hand with competition.
We're talking about this a little bit before we started recording. So since 2005, I'm sure you're
aware of it. The CDIC limit has not changed. It increased from 60 to 100,000 in 2005.
Inflation adjusted. I was like crunching numbers with I think the Bank of Canada inflation
calculator would be about 150k for today. And I know EQ Bank has been kind of, you know,
the advocate for increasing that to $200,000. And I think to me, that's a big part to increase
competition, because we saw what happened in the. with the regional bank crisis last year is there started being an outflow of deposit from small regional banks to the big, large U.S. national banks like a JP Morgan, for example.
factor for some people, especially businesses to have that additional CDIC. Because if not,
there's, I think, just a conception that is just safer to be with these large, you know,
whether it's GSIB, like a TD or Royal Bank or DCIB, the rest of the big five banks. So yeah,
you want to elaborate a little bit more on that, how important that is to have that increase,
hopefully in the next few years?
Yeah, I mean, that is absolutely right. Like when we look at 2005 numbers at 100,000, it's just not sufficient to meet today's customers needs. And then also, if you look at the provincial
insurance that's available to credit unions, for example, it's considerably higher than the federal insurance. And as a smaller bank or a medium-sized bank, the notion of trust and
security that CDAC provides is absolutely fundamental to our success as a business.
What we are seeing, though, is that even when customers have more
than $100,000 to invest, they understand the importance of the insurance. And so they're only
keeping $100,000 with us in each category of CDIC insurance. And so there is an unfair advantage
here with the bigger banks or the DCIBS because you have that implicit trust and knowledge that they're too big to fail.
So increasing CDIC helps to make the playing field a little bit more equal in that the average consumer can rely on the trust that CDIC provides versus having to build that trust on their own,
which can obviously be like a daunting task. Yeah, I totally agree. And I'm obviously just
what happened in the US. I think that kind of solidifies that view, right? If you don't have
that trust, then people sometimes will just go with the larger banks because you just said it,
right? They're too big to fail. So people will kind of stick with them. With SVB, it was a created run on the bank. And if there was that confidence of security
through insurance, it would have been a really different outcome. I will say that EQ and
equitable, though we manage our liquidity incredibly differently where we would never
have an SVB type situation. But CDIC has done a good job in ensuring that customers will get access to
their cash within 24 hours. And so it's actually a fantastic protection and should be extended
further to help the innovation and competition lens in the country. And like just for transparency,
each bank is paying for their CDIC insurance through premium. So it's a self-sustainable model
in that it's the banks themselves
that will pay for the additional insurance.
And so there shouldn't be a cost
to the broader constituency in Canada.
Yeah, I mean, to me, I just think it's a no-brainer,
just based on the fact that the amount
has been the same since 2005, just based on that alone.
I guess the last thing we'll finish on
is the
government started looking into open banking in 2018. And early 2019, they did consultations on
open banking. Do you have a sense why it's taken so long to finally move forward? Is it because of,
you know, the incumbents just lobbying efforts? Is it just because the government just moves very
slowly? Like, what's your perception of that coming from EQ Bank? I think one of the big challenges is that the
customer awareness around this is incredibly low. And so there is no real political will
around this because it's not going to win votes. You combine that with, as you mentioned, this is a huge
tech investment on behalf of the DCIBS. And so there has been quite a bit of pushback in getting
to open banking because of the investment that's going to be required. Plus, there's not much to
gain for a big bank here. It's actually more likely to cause risk to market share.
So those are two factors. The third one is for the Department of Finance, the focus is largely
on stability and security of the banking industry. And I'd say much more important than competition
or innovation. And so the big banks have leaned
into stability and security risks as a way to delay open banking. And then generally,
there's this government perception of not introducing anything that would risk the
stability and security of the financial sector. So one of the big kind of linchpins or the reasons that this has moved
forward is actually because of the risks of screen scraping and the need for an alternative.
And so I'm glad we're here because it's been a long time. But I would say it's really around
this whole security angle and the fact that screen scraping is becoming so prolific that open banking is being pushed forward because it is actually a much better solution for data sharing.
Well, that's great. I appreciate the context and I'll definitely mark my calendar for, let's say, July 2025.
Hopefully by July 25, we'll start seeing kind of that being rolled out, I think. And I mean, from what the QBank has done, and as a user myself, I think everyone there is doing a fantastic job. Like the product offering is great. And even my parents who live on the Quebec side, we're really excited by the new products that are coming to market.
And honestly, what open banking is going to be able to allow us to do in terms of bringing more insight to customers, showing them what their net worth position is across all of their financial institutions is such a powerful infrastructure piece to drive innovation in the Canadian landscape that, yeah, we are very excited.
Well, I mean, this was a great conversation, Mahima. Thank you for coming on. If people want
to help out with this initiative, I'm assuming they should probably reach out to their MPs
representing them. Is that the best way? Are there other avenues that they can kind of voice that
they'd like to see this sooner rather than later? I mean, if they can get in touch with their local government, I think that
would be fantastic to help create the demand around open banking and the speed at which phase
two comes as well. Okay, well, that's great. Thanks a lot for joining us, Mahima. Thank you so much.
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