Is KOHO a Bank? Understanding Canada's New Payment Service Provider Framework
Canadian fintech company KOHO has reached a significant regulatory milestone by becoming one of the first Payment Service Providers (PSP) registered under Canada's Retail Payment Activities Act (RPAA) with the Bank of Canada. This development marks a turning point for digital financial services in Canada, but what does it actually mean for consumers and the broader fintech industry?
What is KOHO?
KOHO is not a traditional bank—it's a neobank and money management app that offers services similar to traditional banks, including spending accounts, savings features, and prepaid Visa cards. As Canada's top-rated money management app, KOHO has built its reputation on providing accessible, mobile-first financial services without the overhead of physical branches.
Like other neobanks globally, KOHO operates through partnerships with licensed financial institutions while maintaining its own technology platform and customer experience. This hybrid model has allowed fintechs to innovate rapidly, but until now, they've operated in a regulatory gray area compared to traditional banks.
Understanding Payment Service Provider Registration
The Payment Service Provider designation under the RPAA represents Canada's first comprehensive regulatory framework specifically designed for fintech companies handling payment services. Here's what makes this significant:
What PSP Registration Requires:
- Comprehensive operational risk management systems
- Strict safeguarding protocols for customer funds
- Regular reporting and compliance obligations to the Bank of Canada
- Board-level accountability for regulatory compliance
- Significant investments in security infrastructure and processes
What It Doesn't Mean: PSP registration is distinct from traditional banking licenses. KOHO remains a fintech company rather than a chartered bank, but now operates under formal federal oversight specifically tailored to payment service providers.
Why This Matters for Consumers
For KOHO's users, this registration translates to several concrete benefits:
Enhanced Fund Protection: The RPAA framework requires rigorous safeguarding measures for customer money, adding an additional layer of security beyond what unregistered fintechs must maintain.
Regulatory Accountability: With oversight from the Bank of Canada, KOHO now operates within a nationally recognized framework with clear accountability structures extending to its board of directors.
Operational Stability: The registration process requires demonstrating robust operational resilience, meaning the platform should be more stable and reliable for everyday transactions.
Greater Transparency: Registered PSPs must meet ongoing reporting requirements, creating a paper trail that protects consumer interests.
The Broader Implications for Canadian Fintech
KOHO's achievement as one of the first registered PSPs signals a maturation of Canada's fintech ecosystem. This development mirrors regulatory trends in other markets like the European Union's PSD2 framework or the UK's authorized payment institution regime.
Building Trust Through Regulation: By embracing federal oversight, KOHO and other early registrants are helping to legitimize fintech services in the eyes of consumers who may have been hesitant about digital-only financial platforms.
Setting Industry Standards: As founder and CEO Daniel Eberhard noted, this registration represents "the strongest possible testament to the robust tools we've built to protect our users." Early adopters are effectively setting the bar for the entire industry.
Competitive Differentiation: PSP registration may become a key differentiator as consumers increasingly scrutinize the security and legitimacy of digital financial services.
How This Compares to Traditional Banking Oversight
It's important to understand that PSP registration under the RPAA is different from the regulatory framework governing traditional banks:
- Traditional banks hold full banking licenses from federal or provincial regulators, participate in deposit insurance programs (like CDIC), and face extensive capital requirements
- Registered PSPs operate under a framework specifically designed for payment services, with oversight focused on transaction security, operational resilience, and consumer protection
This tailored approach acknowledges that fintechs operate differently from traditional banks while still ensuring appropriate consumer safeguards.
What's Next for Canadian Neobanks?
KOHO's registration likely represents the beginning of a broader wave of fintech regulation in Canada. Other digital financial services providers will need to evaluate whether PSP registration is required for their operations under the RPAA framework.
For consumers, this creates a new question to ask when choosing digital financial services: Is this provider a registered PSP? While registration doesn't guarantee perfection, it does indicate a commitment to regulatory compliance and consumer protection that goes beyond the minimum requirements for unregistered operators.
Die Quintessenz
KOHO's achievement as one of Canada's first registered Payment Service Providers represents more than just a regulatory checkbox—it's a signal that Canadian fintech is entering a new phase of maturity. While KOHO isn't a bank in the traditional sense, its PSP registration places it under formal Bank of Canada oversight, potentially offering users greater peace of mind about the security and stability of their digital financial services.
As Canada's financial technology landscape continues to evolve, regulatory frameworks like the RPAA will play a crucial role in balancing innovation with consumer protection. For users of digital financial services, this development is ultimately positive: more oversight, greater accountability, and stronger protections for your money.