Koho Financial Inc. is now “late in the final stages” of obtaining a federal banking licence, says its chief executive, after the Toronto-based company announced it had raised $130 million, valuing it at $1.3 billion.
“It provides us all the capital we need to put on the balance sheet, which was kind of one of the last big things we needed to put in place,” Daniel Eberhard, Koho’s chief executive, said. “It’s significant for sure.”
Mubadala, an Abu Dhabi-based investor managing more than US$385 billion in assets, and Savano Direct Capital Partners LLC, a Baltimore-based investment firm, joined as new institutional partners in the latest financing round, while Tobi Lütke, founder and chief executive of Shopify Inc., and Michael Linford, chief operating officer of Affirm Canada Holdings Ltd., also invested.
Eberhard said he feels lucky to have these investors on board.
“They obviously have a lot of direct operating insight, which we hope we can translate into helping us build a better company,” he said.
Launched in 2014, Koho serves more than 2.5 million Canadians, the company said. Some of its key services include providing higher interest rates on savings, relatively lower fees and offering products that help individuals boost their credit scores over time.
The fintech has been working with the Office of the Superintendent of Financial Institutions (OSFI), Canada’s top banking regulator, since 2021 to get a banking licence.
To obtain a federal banking licence through OSFI, companies generally go through a three-stage process and must meet conditions such as submitting a five-year business plan and demonstrating sufficient capital. Koho said it advanced into the second phase of that process in 2024.
“The biggest parts of the second stage are an onsite audit and capitalizing the bank and both of those work streams are underway,” Eberhard said.
Koho’s looming entry into the banking sector comes as the Canadian government is trying to encourage more competition in the financial sector by introducing a series of measures — from cutting fees to simplifying the process of switching chequing accounts — to encourage alternative financial institutions such as fintechs to grow.
OSFI in April said it was working on making the path to a federal licence “quicker, clearer and more predictable” while maintaining a strong oversight.
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Eberhard is already witnessing some of those benefits.
“There’s nothing that is structurally changed from OSFI. They still look for all the same things, but they feel culturally unburdened,” he said. “OSFI understands that new banks and competition are now an important part of their mandate, and before that it just wasn’t part of their mandate.”
He also said he believes OSFI feels liberated now to have a more nuanced view of risk, which in previous regimes was set to effectively zero.
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