Non-committal on a banking license, Wealthsimple CEO Michael Katchen says company’s ambitions extend “beyond Canada”

Mike Katchen

At a recent panel for BetaKit Patreon supporters, Wealthsimple CEO and co-founder Michael Katchen revealed that despite recently selling its United States (US) book of business, Wealthsimple still plans to pursue international markets.

Katchen made these remarks during the June Patreon-exclusive BetaKit Live event, titled ‘Canada’s FinTech Unicorns.’ Hosted by BetaKit Editor-in-Chief Douglas Soltys, the event also featured Michele Romanow, president and co-founder of Toronto FinTech unicorn Clearco (formerly Clearbanc).

“We don’t think Canadians need another bank, we think they need something better than a bank.”
-Michael Katchen, Wealthsimple CEO
 
 

Wealthsimple renewed its focus on the Canadian market after selling off its US book of business to Betterment in March. When asked whether Wealthsimple’s growth strategy involves seeking a charter bank license in the country, Katchen replied, “We don’t think Canadians need another bank, we think they need something better than a bank.”

“I think that the question of whether we actually need to go and get a charter banking license ourselves is one to be determined,” Katchen continued. “I think you can actually deliver most of what you want through partnership without having to get that license.”

Katchen also spoke about Toronto-based Wealthsimple’s need to focus on a single market first, to ensure the startup has its product offering right. “I think what you’ve seen from us, as we’ve divested from the advisors business a year ago, as we left the US market to focus on Canada, it’s about focus,” said Katchen, referencing Wealthsimple’s spin out of its advisory service into a separate company in 2019.

“Doing five products is not easy, so we want to do that really well,” said Katchen. “We also want to do products 6, 7, 8, 9, and 10, but we just need to sequence that in the right way so we can do that well, too.”

Wealthsimple, which also currently serves the United Kingdom, still sees a lot of room to grow in Canada. But according to Katchen, the startup’s ambitions don’t end there.

“We have a deeply loved and known and trusted brand, we have this really interesting market leadership across a series of products that we do, we have this opportunity to become the leading consumer finance business in [Canada], and we’ve got to go do that,” said Katchen.

“But our ambitions remain beyond Canada, and certainly we’re excited about other markets in time,” the CEO added.

BetaKit Live Canada's FinTech Unicorns

Those who wish to view the full BetaKit Live conversation with Mike Katchen and Michele Romanow can do so by becoming a BetaKit Patreon supporter.

This year has been a busy one for Wealthsimple. In addition to selling its US book of business, the startup launched its peer-to-peer payment app Wealthsimple Cash, and its trading app Wealthsimple Trade rode the meme stock frenzy in January to reach number one on Canada’s app store. The company announced a $5 billion CAD valuation in May, following a $750 million round featuring $250 million in primary capital.

“The opportunity in front of us has never been bigger, and it’s never felt more real,” said Katchen. “We’ve transformed the company in the last few years from just a long-term investment business to what we believe is going to be the largest consumer finance company in the country.”

Getting there might involve going public. In 2019, Katchen told BetaKit Wealthsimple had set a target of $20 billion in assets under administration (AUA) before considering an initial public offering (IPO). According to the Financial Post, as of February 2021, Wealthsimple is nearly halfway there, with about $9.7 billion in AUA.

Katchen said Wealthsimple still plans to become a public company at some point, but declined to say when, noting a number of additional considerations beyond AUA.

RELATED: Wealthsimple secures $750 million CAD, claims $5 billion valuation

“We’re in a fortunate position that our financial performance is way ahead of plan,” said Katchen. “For us, the question regarding public or private has less to do about that and more to do with when it’s the right time in business for a host of myriad reasons that go into the decision of when to go public. That is ultimately the ambition, but when, I can’t comment on that just yet.”

To provide investment services to Canadians, Wealthsimple built its own infrastructure, which Katchen said “is highly technical, requires high performance, high regulatory compliance, [and] high integrations with legacy platforms,” which the CEO called “extremely difficult to do well and scale.”

This work has paid off: according to Katchen, Wealthsimple has the second-largest brokerage business in the country by clients, “after just two years of launching.”

Wealthsimple’s approach to handling the meme stocks saga earlier this year encapsulates both the company’s mission and its focused, methodical approach to growth.

“Meme stocks was another great example where our trading business is a great opportunity to bring first time investors into the securities market, to extend equity ownership across the broader population quickly,” said Katchen. “But it also carries risks.”

RELATED: Wealthsimple Trade’s popularity soars amid Reddit-fuelled trading frenzy

Other stock trading platforms, including California-based brokerage Robinhood, restricted trades during this period. Earlier this week, Robinhood agreed to pay $70 million to resolve regulatory allegations that it misled customers, approved ineligible traders for risky strategies, and didn’t supervise technology that failed, locking millions out of trading.

Wealthsimple opted not to restrict stock trading, but instead implemented additional protections, allowing users to request trades but preventing them from going through if the order price jumped or fell more than five percent.

“We decided to take a stand and say that, you know what, we’re all adults,” said Katchen. “We’re not going to tell our clients what they can and can’t do. But we have a responsibility, given the role that we play and the mission of the business, to help inform our clients.”

Katchen noted this consideration informed the changes Wealthsimple implemented during the meme stock craze, such as adding warnings on highly volatile securities and sharing more educational content with its users regarding the risks of trading.

For now, Wealthsimple remains focused on the Canadian market and the saving and spending category, but Katchen added that, over time, the startup intends to expand more into segments like credit and insurance.

Those who wish to watch the full conversation, which includes Michele Romanow explaining how she grew Clearco into a $2 billion USD FinTech company, can do so by becoming a BetaKit Patreon supporter.

UPDATE (07/14/21): A previous version of this story misquoted Michael Katchen. BetaKit regrets the error.

Josh Scott

Josh Scott

Josh Scott is a BetaKit staff writer who loves to tell Canadian business and tech stories. His coverage is more complete than his moustache.