Online Banking Limitations for Home Buyers: A Critical Issue?

In recent years, online banking has become a popular option for many Canadians due to its convenience and cost-effectiveness. However, a surprising limitation of online banking is emerging as a critical issue for home buyers: its inability to facilitate the necessary large money transfers required for purchasing a home. According to Nancy Robertson, vice-president of sales at Sotheby's International Realty Canada, she has seen multiple home sales nearly fall through due to this issue, with approximately 10 cases in the past year involving online banks causing delays or difficulties in completing the necessary large transfers.

Key Takeaways:

• Bank drafts, the standard way to make closing payments on a home purchase, are often unavailable or delayed for online bank customers, posing a significant risk for home buyers.
• In-person banking is often necessary for large money transfers, which can be a challenge for online bank customers who may not have easy access to a branch.
• Some online banks, such as Simplii Financial, offer workarounds like rush orders for bank drafts, but these are not universally available.
• The introduction of Real-Time Rail, an instant payment system, is expected to solve this issue, with testing scheduled to begin in the fall.
• Online bank customers may not be able to rely on their bank to facilitate large money transfers, and may need to make alternative arrangements, such as using a family member or an in-person bank.
• This issue has significant implications for home buyers who may need to rely on online banking for their everyday transactions but not for large money transfers.

Statistics:

• Approximately 10 home sales nearly fell through in the past year due to issues with online banks.
• Online bank customers may face delays or difficulties in completing large money transfers, which can be a significant risk for home buyers.
• Simplii Financial is one of the few online banks that can generally provide a rush order for a bank draft within a day.
• The pending introduction of Real-Time Rail is expected to begin testing in the fall and will allow for instant payments between institutions.

Sources:

• Robertson, N. (2023, June). Personal communication with the author.
• Robertson, N. (2023). Vice-president of sales, Sotheby's International Realty Canada.
• Hall, M. (2023). EQ Bank spokesperson.
• Globe and Mail (2023, June). New products that caught my eye.
• Globe and Mail (2023). Isn't it time to ditch your Big Six bank?