Vendor Sprawl

When Vendor Decisions Become Regulatory Decisions for Canadian Lenders

Abstract: Canadian lenders are increasingly exposed to regulatory and consumer risk not because of technology adoption, but because of how vendor decisions are made, documented, and defended over time. As underwriting, fraud, onboarding, and servicing flows rely on growing ecosystems of third-party providers, individual tool choices can collectively create governance gaps that surface under regulatory scrutiny or in poor customer outcomes. In today’s environment, vendor selection is no longer a procurement exercise alone. It is a decision-making discipline that directly affects compliance, accountability, and consumer trust.

Canadian lenders are not struggling to adopt new technology. A single loan or account flow can now involve half a dozen or more external vendors before funds ever move. They are struggling to defend the decisions behind those choices.

Across banks, non-bank lenders, fintechs, and private credit providers, the volume of vendors touching underwriting, fraud, onboarding, servicing, and collections continues to grow. Each new tool promises incremental gains in accuracy, speed, or automation. Taken individually, these decisions often appear reasonable. Taken together, they introduce a new kind of institutional risk, one that emerges under regulatory scrutiny and, increasingly, in consumer outcomes.

This goes beyond any single tool. It reflects how vendor decisions are made, recorded, and defended over time.

Vendor sprawl is quietly becoming a regulatory issue

Canadian regulatory expectations, whether from OSFI, provincial authorities, or internal audit functions, increasingly focus on how decisions are made, not just what decisions were approved.

When regulators review third-party risk, model governance, or operational resilience, they are not simply asking whether a vendor was vetted. They are asking:

• Why was this solution chosen over alternatives?
• What risks were identified and explicitly accepted?
• How are performance and outcomes monitored over time?
• How does this decision affect borrower or customer experience if it fails or degrades?
• Who is accountable if the vendor’s behaviour changes?

In many institutions, answers exist, but only partially. Rationale is scattered across slide decks, email threads, and meeting notes. Ownership shifts as teams reorganize. Six to eighteen months after a decision is made, the institution can point to approval artifacts, but struggles to clearly articulate the reasoning behind them.

Under examination, that gap matters.

How governance gaps turn into consumer outcomes

Vendor decisions do not stay confined to internal systems. They shape borrower and customer experiences in ways that are often invisible until something goes wrong.

Consider a common lending journey. A consumer applies for credit through a digital flow supported by multiple vendors: one for identity verification, another for credit decisioning, and a third for fraud monitoring. Each system may be functioning as designed. But when thresholds are misaligned or accountability is unclear, the experience degrades: repeated document requests, unexplained declines, delayed funding, or inconsistent communications.

From the consumer’s perspective, these are not vendor failures. They are lender failures.

In Canada’s regulatory environment, where consumer protection and fairness are tightly scrutinized, these moments create more than reputational risk. They can surface as complaints, remediation efforts, or supervisory attention, long after the original vendor decision has faded from memory.

Why traditional procurement no longer holds up

Most vendor evaluation processes were designed for a slower, more stable market. The traditional RFP assumes that requirements can be fully defined upfront, that markets will remain relatively static during evaluation, and that a single “best” answer exists.

Those assumptions rarely hold today.

Vendor capabilities evolve mid-process. Pricing models vary widely. Integration effort and data dependencies matter as much as feature depth. At the same time, risk, compliance, legal, IT, and business teams are all asked to weigh in, often without shared criteria or a clear decision owner.

The result is not better oversight. It is committee overload, prolonged timelines, and decisions that feel defensible on paper but fragile in practice.

What leading Canadian lenders are changing

Some lenders are responding by shifting focus away from faster procurement and toward stronger decision infrastructure.

Rather than treating vendor selection as a one-time approval, they are reframing it as a governed lifecycle. That means:

• Establishing shared evaluation criteria before vendor conversations begin
• Separating objective evidence from subjective preference
• Making risk acceptance explicit, documented, and reviewable
• Assigning clear ownership beyond contract signature, including reassessment triggers

This approach does not slow innovation. In practice, it reduces re-litigation, shortens future evaluations, and improves the institution’s ability to explain decisions under scrutiny.

Practical steps lenders can take now (without redesigning procurement)

Improving decision governance does not require adding layers of bureaucracy. A small number of changes tend to deliver outsized impact:

• Standardize decision inputs: Align upfront on what evidence matters, which integrations are non-negotiable, and where risk tolerance sits before reviewing proposals.
• Document tradeoffs at the moment of decision: Capture why a choice was made, which risks were accepted, and which alternatives were set aside. This creates durable institutional memory.
• Name lifecycle owners: Vendor accountability should not end at go-live. Assign clear stewardship for performance review, consumer impact, and exit readiness.

These steps improve regulatory defensibility and reduce downstream consumer friction without sacrificing speed.

The shift Canadian lenders cannot avoid

Vendor ecosystems will continue to expand, and new technologies will continue to promise competitive advantage. The differentiator for Canadian lenders will not be who adopts the most tools, but who can explain and defend their decisions with clarity.

In today’s environment, vendor decisions are no longer just operational choices. They are regulatory decisions, consumer decisions, and governance decisions, whether institutions treat them that way or not.

Lenders that invest in decision structure now will be better positioned to withstand scrutiny, adapt to change, and deliver more consistent outcomes for the people they serve.

Five key insights

• Vendor decisions now carry regulatory weight: Regulators increasingly assess not just outcomes, but how and why vendor decisions were made, documented, and governed over time.
• Fragmented rationale creates institutional risk: When decision logic is scattered across emails, decks, and meetings, lenders struggle to explain past choices under audit or supervisory review.
• Governance gaps surface as consumer harm: Misaligned vendor thresholds and unclear accountability often appear to consumers as lender failures, triggering complaints and remediation.
• Traditional RFP models no longer fit modern ecosystems: Static procurement processes cannot keep pace with evolving vendor capabilities, complex integrations, and cross-functional risk ownership.
• Strong decision infrastructure accelerates innovation: Clear criteria, explicit risk acceptance, and lifecycle ownership reduce re-litigation, improve defensibility, and support consistent consumer outcomes.