Koho Financial Inc. is now in the late final stages of obtaining a federal banking licence, according to its chief executive, after the Toronto-based company announced it had raised $130 million, valuing it at $1.3 billion.
This capital injection provides the necessary funds for the company's balance sheet, which was one of the last major requirements for the licence, said Daniel Eberhard, Koho's chief executive. The funding round included new institutional partners such as Mubadala, an Abu Dhabi-based investor with over US$385 billion in assets, and Savano Direct Capital Partners LLC, a Baltimore-based investment firm. Additionally, Tobi Lütke, founder and CEO of Shopify Inc., and Michael Linford, COO of Affirm Canada Holdings Ltd., also invested.
Koho's Journey to a Banking Licence
Launched in 2014, Koho serves more than 2.5 million Canadians, offering services like higher interest rates on savings, lower fees, and products to help individuals boost their credit scores. The fintech has been working with the Office of the Superintendent of Financial Institutions (OSFI) since 2021 to secure a banking licence. Obtaining a federal banking licence involves a three-stage process, including submitting a five-year business plan and demonstrating sufficient capital. Koho advanced to the second phase in 2024.
Eberhard noted that the second stage involves an onsite audit and capitalizing the bank, both of which are underway. Koho's progress comes as the Canadian government seeks to increase competition in the financial sector by simplifying the process for alternative institutions like fintechs to obtain licences.
OSFI's Changing Approach
In April, OSFI announced it was working to make the path to a federal licence quicker, clearer, and more predictable while maintaining strong oversight. Eberhard said OSFI now feels culturally unburdened and understands that new banks and competition are an important part of their mandate. He added that OSFI feels liberated to have a more nuanced view of risk, which in previous regimes was set to effectively zero.
Eberhard expressed gratitude for the new investors, noting their direct operating insight will help build a better company. With the capital secured and the licensing process nearing completion, Koho is poised to become a significant player in Canada's banking sector.
