Nora Dunn
Beth Buczynski
Surprising as it may sound, not everybody can – or wants to – open a bank account. Globally, over 1 billion adults remain unbanked, according to the World Bank.
The term “unbanked” refers to people who lack an account at any financial institution. Three percent of all Canadians — around 1 million — were unbanked in 2016, according to a report by ACORN Canada, a national community organization.
The term “underbanked” refers to people who have a bank account, but primarily use alternative financial services. A whopping 15% of Canadian households were underbanked in 2016, according to the ACORN report.
For both the unbanked and underbanked, simple tasks like paying bills or buying groceries are trickier, and in some cases, more expensive. Whether it’s by choice or not, here’s what you need to know when traditional banking isn’t an option.
Reasons why you could be denied a bank account in Canada
Your application for a bank account might be rejected if:
- The institution believes you will use the account for illegal or fraudulent activity.
- You have a history of illegal or fraudulent activity with other banks.
- You knowingly lied on your application.
- The bank believes you will harm or abuse bank staff or customers.
- You don’t allow the bank to verify your identity.
- The branch or institution requires you to have an existing account with another financial institution and you don’t have one.
Your application could also be provisionally denied if you don’t submit all the correct paperwork. One of the two required forms of original identification needs to show proof of address, which newcomers to Canada may not yet have. Some banks can circumvent this by allowing you to submit a reference letter from somebody in good standing with the bank or local community.
What to do if your bank account application is denied
If the bank refuses your application, they must inform you in writing. If the reason is something you can fix with additional paperwork, this process should be outlined for you.
The letter should also state how to lodge a complaint if you feel your application was inappropriately denied.
Complaints follow this three-step process:
1. Speak to a bank representative: This can be somebody at the branch, call centre, or online chat. Describe your problem and provide supporting details or paperwork. If they can’t or won’t fix the problem, you can ask them to refer your complaint to the next step.
2. Escalate to the bank’s complaint department: You’ll converse with a dedicated complaint-handler. If they still can’t help you, ask for a detailed written response (which they can send by email or regular mail). You’ll take this written response to the next step.
3. Escalate to the bank’s external complaints body (ECB): Your initial application denial letter will have the contact information of the ECB that the bank is a member of. You still need to go through the first two steps; ideally most complaints are resolved before they reach this level. The ECB will either be the Ombudsman for Banking Services and Investments (OBSI) or the ADR Chambers Banking Ombuds Office (ADRBO).
Alternatives to traditional banking in Canada
While having a bank account is pretty integral to daily life for many Canadians, it’s not the only way to go. Here are some alternative options for conducting financial business.
Prepaid debit cards
A prepaid debit card looks like a credit card but instead of operating on credit, you load funds onto the card that you can spend.
Prepaid cards can be purchased and loaded with cash at many retailers — you don’t need a bank account.You can then use the card for online and in-store purchases. You may also be able to pay bills, send Interac e-transfers, access foreign currencies, and more.
You’ll likely pay a monthly fee to have the prepaid debt card, and there may be certain transactional fees.
Money orders
Money orders are like cheques, except the funds are guaranteed. Money orders are often used as an alternative to cheques and Interac eTransfers.
You don’t need a bank account to send or receive a money order (though you can visit a bank to purchase or cash one). Some money order providers, like Canada Post, have a limit of $1,000 per money order, and the fees can be up to $10.
Cheque-cashing services
Banks and credit unions won’t cash cheques if you don’t have an account with them; this is where cheque-cashing services come in.
Cheque-cashing companies typically operate seven days a week and won’t put a hold on the money, so you’ll get the cash immediately.
This convenience comes at a cost; you’ll likely pay a flat processing fee and a percentage of the cheque amount.
Note: Many cheque-cashing services won’t accept personal cheques due to the risk of insufficient funds. Think of them more as an option for payroll or Government of Canada cheques.
Money transfer services
Money transfer services can be used to move money locally and internationally.
The range of money transfer options varies by company; some (like Western Union) have physical stores that allow you to fund a transfer with cash, while others operate solely online. Others (like Wise) allow you to connect a foreign bank account and set up bank account details in Canada; this can be a way to send and receive electronic deposits without needing proof of address.
Money transfer services and apps vary widely in terms of requirements and fees. Be sure to compare them carefully before signing up.
Credit unions
Depending on the reason why you lack a bank account, a credit union might present a viable alternative. While credit unions are similar to traditional banks, they are provincially run and operate as not-for-profit organizations that are owned wholly by their customers. For example, the Innovation Credit Union offers a variety of financial products to their members, such as a no-fee chequing account and top it up with cash dividends for everyday banking.
In some cases, credit unions’ products and services and application requirements may vary but they may be better suited for your needs.
Frequently asked questions
Yes, you can be denied a bank account in Canada. Reasons for denial include an inability to provide sufficient documents confirming your identity, or if the bank has reason to believe you’re involved in illegal or fraudulent activity.
While most banks require proof of a Canadian address to open an account, you may be able to get around this by filing additional paperwork, or with the assistance of a current bank customer who can confirm your identity.
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