The Tax You Didn’t Know You Were Paying

Every Canadian bank, from the giants to the slickest fintech, has built its business on a single bet: you won’t leave. Not because you love them. Not because they’re giving you a great deal. But because leaving is annoying.

Think about what switching banks actually involves. You’d need to update your payroll deposit. Re-enter every bill payment. Call customer service and wait on hold. Explain to your employer why your direct deposit information changed. Fill out forms. Maybe visit a branch. Remember passwords. Transfer money. Close accounts without accidentally missing something.

It’s just easier to stay.

That friction, that tiny everyday hassle, is worth billions. It lets banks pay you almost nothing on your savings while lending that same money out at much higher rates. It’s a quiet tax on your inertia. And it’s how the entire Canadian banking system stays profitable.

Here’s the reality that nobody discusses openly: Canadian banks don’t own your loyalty. They own your inconvenience. And they’ve built their entire business on the assumption you’ll keep paying for it. Very sad, I know.

But Canada is about to make leaving effortless. And when that happens, everyone who’s been surviving in the dark will have to figure out what they’re actually good at, and fast.

The Comfortable Machine

To understand why this matters, you need to understand how the machine works. Canada’s six largest banks control roughly 94% of the country’s deposits. This concentration isn’t accidental. It’s the product of structural advantages that have created powerful barriers: lots of branches, regulations that make it hard for new competitors to enter, and most importantly, the sheer hassle of switching.

The economics are simple. When you keep money in a savings account earning 0.3%, the bank turns around and lends that money to someone else at 6% or 7%. The difference is profit. When you can gather cheap, stable deposits from customers who won’t leave, you can lend that money at healthy margins all day long.

“It would also be hard to argue, on any objective measure, that Canada’s banking system is anything other than an oligopoly,” said Carolyn Rogers, the Bank of Canada’s second-in-command, in a 2025 speech. She noted that this concentration has “clear negative impacts on productivity, innovation, capital allocation, cost and consumer choice.”

The system wasn’t designed to serve you. It was designed so you’d never question it.

When the Lights Come On

In June 2024, Canada passed the Consumer-Driven Banking Act. The government is targeting early 2026 for the first phase, which will let any approved app see all your accounts and compare your earnings across different banks. Later stages may add the ability to initiate payments and automate switching.

The explicit goal, stated in government documents, is to “empower Canadians to securely access and share their financial data” and “make it safer and more secure to switch and use new providers.”

Translation: the hassle barrier is being legislated away.

Once these systems are live, an app will be able to show you, in real-time, that your savings account earning 0.3% at one bank sits next to an identical product paying 3% at another. It will identify idle cash that’s making you almost nothing. It will suggest better options. And eventually, it may automate much of the switching process.

Something shifts psychologically when you see this. You don’t think “my bank is reliable.” You think, “My bank is ripping me off.” That realization is irreversible. Once you see it, you can’t unsee it.

The Phone Number Prison

This isn’t theory. We’ve watched the same pattern unfold in other industries.

In the 1990s, your mobile phone number was assigned by your carrier. Want to switch from one company to another? Lose your number. Tell everyone you know your new contact information. Update your business cards. Miss calls from people who had your old number.

The switching cost wasn’t about the phone or the service. It was about your identity. Your number was you. And the carriers knew it. Then, regulators introduced Mobile Number Portability. They forced carriers to let you keep your number when you switched.

Overnight, the rules changed. Suddenly, keeping customers required actually being good, not just holding their identity hostage.

The telecom companies responded predictably. They created bundles, mobile plus internet plus TV plus landline, making it painful to leave, not through legal lock-in, but through complexity. You could leave, but untangling four services felt harder than staying.

Sound familiar? Right now, your payroll deposit, your bill payments, your mortgage, and your credit card are all tangled together at one bank. Not because that bank is best at all of them, but because untangling them is annoying.

Open banking is about to let you keep your “financial identity” while switching providers.

The Energy Awakening

The UK energy market offers an even more direct preview.

In 2010, the UK’s six dominant energy suppliers controlled 99% of households. They’d perfected a simple game: charge loyal customers high default rates while offering cheap promotional deals to active switchers. Most people never switched because energy was boring and the process felt hard. Who wants to spend an afternoon comparing gas rates?

Then regulators forced transparency. Price comparison websites made rates visible. Switching became a two-minute digital process.

The big suppliers’ market share collapsed from 99% to under 70% in a decade. Profit margins on household supplies went to nearly zero. The loyalty tax became impossible to collect once people realized they were paying it.

But here’s where it gets interesting: the challengers died too.

Dozens of app-based energy suppliers (Bulb, Avro, and many others) grabbed millions of customers with low prices and slick apps. They looked like winners until wholesale energy prices spiked in 2021.

These challengers didn’t own power plants. They were resellers, middlemen with nice interfaces. When costs rose, they had no cushion. From mid-2021 to mid-2022, 29 suppliers exited the market. Their customers were swept back to the old giants or into government rescue schemes.

The lesson is stark: making it easy to leave doesn’t just hurt the big players. It exposes everyone who’s been riding on the old system’s inefficiencies.

The Psychology of Awakening

There’s a famous scene in The Matrix where Morpheus offers Neo a choice between two pills. Take the blue pill, stay asleep, keep living in the comfortable illusion. Take the red pill, wake up, see reality for what it is.

Open banking is the red pill.

The Canadian banking system is like a constructed reality designed to keep customers docile and productive, not for themselves, but for the banks. Customers live in a simulated reality where paying almost nothing on savings while the bank earns many times more on the same money feels… normal, where expensive overdraft fees feel like a reasonable consequence of a mistake. Where “switching banks” feels like an insurmountable hassle best avoided.

The system was designed so you’d never question it. The friction isn’t a bug; it’s the code that keeps you plugged in. But here’s the uncomfortable part of the awakening metaphor that most people forget: being awake is hard.

In The Matrix, the awake characters live on a rusted ship, subsisting on cold gruel, hunted by machines. One character famously chooses to return to the simulation, to forget the truth, because ignorance is bliss.

This is the adoption problem in a single insight.

UK open banking has achieved only modest penetration after seven years. Australia’s similar program has been a near-complete failure; barely anyone uses it. Most people, even when shown the door, don’t walk through it. The hassle of switching, even when reduced, is still a hassle. The current bank still feels fine. Ignorance remains bliss.

The sleepers can wake up. Most of them choose not to.

The Twelve Percent Question

So if most people won’t switch, does any of this matter?

Here’s why it does: you don’t need everyone to switch. You just need enough.

Research suggests that even with dramatically reduced friction, maybe only 10-15% of deposits would likely move. The rest stay put because of bundled relationships (mortgages, credit cards, business accounts) that create a kind of stickiness of their own.

But that 10-15% isn’t random. It’s the high-balance, rate-sensitive, financially sophisticated customers who pay attention to what their money earns. These are disproportionately the customers who fund bank profitability.

When these customers start moving, banks face a brutal choice. They can let the most valuable customers leave, or they can raise rates to keep them.

But here’s the trap: if a bank raises its savings rate to defend market share, it can’t easily pay 3% to customers who are leaving while paying 0.3% to loyal customers who stayed. Not when comparison apps make the discrepancy visible. So the bank ends up raising rates for everyone.

That’s when the math gets uncomfortable. Even a small increase in what banks pay depositors, spread across trillions of dollars, translates to billions in lost profit. The 12% who wake up force the 88% to get better rates, too — whether they asked for it or not.

Everyone Is Exposed

The natural assumption is that this change hurts big banks and helps challengers. The reality is messier. Yes, the big banks lose their inertia advantage. But look closely at the challengers.

Many Canadian fintechs aren’t actually banks. They’re technology companies that partner with banks to hold your money. When they advertise deposit insurance, they’re advertising someone else’s protection. They’re resellers with nice apps, precisely like those UK energy companies that collapsed when conditions changed.

Others are real banks, but small ones, funding mortgages and specialized lending with deposits gathered through high rates. Their margins are already thin. When everyone has to pay competitive rates, their advantage shrinks.

The UK energy market proved that when the construct breaks, both the old giants and the flashy newcomers get hurt. The giants lose their pricing power. The newcomers lose the arbitrage opportunity that funded their growth.

What survives? Whoever owns something real.

The Noun Problem

Here’s the insight that ties everything together.

Strong businesses own a concept in customers’ minds. Not a description. A concept. Volvo owns safety. Google owns search. Netflix owns streaming.

Canadian banks (big and small) don’t own concepts. They own convenience. They own inertia. Their position in your mind isn’t “the trusted financial partner” or “the simplest banking experience.” It’s “the one I’m already using.”

When you make switching effortless, “the one I’m already using” stops being a position. It becomes a liability. Neither the big banks nor the challengers have solved this problem. Both are fighting over existing customers, trying to poach people from each other, rather than capturing new relationships at the moment they form.

The real opportunity is life events. The new job that triggers a bank switch. The first mortgage that locks in a decades-long relationship. The marriage or divorce that restructures everything. The inheritance that needs a new home.

One fintech, Wealthsimple, captured over a third of all First Home Savings Accounts opened in Canada. They’re getting to first-time homebuyers before those customers get mortgages, building the relationship upstream.

That’s what owning a concept looks like. Not “we have better rates” (which is temporary). Not “we have a nicer app” (which can be copied). But “we’re how you build your first home,” which creates loyalty that survives rate changes.

What Happens Next

The Consumer-Driven Banking Act passed. The first phase is targeted for early 2026. Full implementation will take longer. That gives banks roughly two years to figure out what they’re actually good at beyond inertia. It gives challengers the same window to build real businesses before the stress test arrives.

Some will thrive. They’ll own concepts that matter. They’ll build relationships that customers genuinely value. They’ll create switching costs based on actual service rather than artificial friction.

Others will discover they were never really good at banking. They were just good at being the default. The comfortable assumption underlying Canadian banking, that customers stay put and don’t ask too many questions, is becoming obsolete.

The Tax Ends

For decades, Canadians have been paying an invisible tax. Not a line item on their statements. Not a fee they could identify and dispute. Just the quiet cost of inertia. The gap between what they earn from their money and what they could earn if switching weren’t such a hassle.

That tax funded bank profits, fintech arbitrage opportunities, and an entire ecosystem built on customer passivity.

The tax is ending. Not because banks decided to be generous. Because regulators are forcing transparency. Because technology is reducing friction. Because the gap between what customers accept and what they could get is becoming visible.

Once you see it, you can’t unsee it.
The sleepers are about to wake up.