Fintech is exploding.
It is a global industry, striving to change the future of finance.
…And the future is now. At Kurtosys, we’ve set out to cover exactly what’s happening in the financial industry the world over, one country at a time. With so many places contributing to the advancement of our digital world, each deserves their own time in the spotlight.
This time, heading away from Europe, we’re travelling to Canada. Whilst neighbouring the fintech giant that is the United States, this North American behemoth is steadily boosting its reputation of having one of the most secure banking systems in the world. Read on to discover how this affects their up-and-coming fintech landscape.
With a country boasting such incredible musical talent as Justin Bieber, Nickelback and Avril Lavigne, it was naturally going to be on our fintech radar, eh? But seriously, Alexisonfire are awesome, and Canada was actually named by accident, when French Explorer Jacques Cartier mistook a native term for village – ‘kanata’ – for the country’s name as we see it today. It is a land that has birthed such funny people as Jim Carrey, Mike Myers and Leslie Nielsen, and big-time serious actors such as Malin Åkerman and Ryan Gosling*, with the latter achieving early stardom in Canadian cult-classic TV show Goosebumps. The less said about that the better. More should be said, however, about Canada’s rise to fintech prominence.
According to a post in the Canadian publication The Globe and Mail, outside the technology life-blood of Silicon Valley, Canada’s province of Ontario (home to cities including Toronto, Ottawa and Hamilton) has among the highest concentrations of technological firms. The reason for this being its low costs, and the universities in the Toronto and Waterloo area being abound with graduate engineers and developers. Deloitte awarded Canada a global financial centre rank of 21 in 2016.
There has recently been investment from both the financial and technological industries. Of note, Goldman Sachs invested in Financeit (based in Toronto, offering businesses a platform for customer payment plans) in 2015, as well as nanoPay in 2016, a “frictionless payments” service, also based in Toronto. Elsewhere, one of Japan’s world leading tech services companies NTT Data Corp has announced a partnership with MaRS Innovation lab (more about them later on), promising to support Canadian startups whose technologies can be used by NTT. Two notable startups from Canada that have achieved success are Shopify – a cloud-based e-commerce company that designs software for online stores for SMEs, founded in 2004 – and Hootsuite, a social media management platform used by over 15 million people, founded in 2008 in Vancouver, which similarly has a thriving fintech ecosystem like the cities in the East.
Despite the global financial crisis of 2007/08, Canadian banks remained unscathed according to the Canadian Bankers Association; none were in danger of failure or were bailed out. In fact, Canada’s banks have been rated amongst the soundest in the world for the past 10 years, rated highly due to them being well capitalised, managed and regulated. Should a similar crash occur in the future, each bank has developed “recovery and resolution plans” already – ahead of the curve. Plus, the development of regulatory frameworks for banks and insurers is being handled by both domestic and global organisations, so Canadians are clearly remaining resolute to keep their well-earned ‘sound banking’ tag.
The largest banks in Canada are referred to as the ‘Big Six’ by a report from PWC, and are as follows:
- Bank of Montreal (BMO)
- Canadian Imperial Bank of Commerce (CIBC)
- National Bank of Canada (NBC)
- Royal Bank of Canada (RBC)
- Toronto-Dominion Bank (TD)
As well as these established financial institutions, there is also the presence of online disruptor banks, which include Tangerine, PC Financial and Canadian Tire Bank. However, in 2014 it is noted that these banks only accounted for 3% of Canadians’ total deposits. Are digital financial companies still very much in the shadow of major banks, who retain brand recognition and consumer trust? Peter Aceto, CEO of Tangerine, believes that there is a social revolution occurring within the financial industry, with consumers losing trust in major banks and “expecting experiences that simplify their lives, that makes things easy”. Tangerine was the original disruptor bank that launched its first branchless bank in Canada. Truly, banks are responding to this revolution that Aceto outlines, and it turns out that many are making heavy investments in technology to “transform their customer experience, automate processes, comply with regulatory demands and enhance digital capabilities”, with many beginning the enablement and implementation of APIs.
Despite the regulators’ tendency to aim for stability (thus halting market innovation), Canadian fintech is still pushing to gain momentum. There are already more than 80 fintech firms in Canada, with the GTA (Greater Toronto Area)-Waterloo and Vancouver areas being the sites for a concentrated ecosystem of major banks, universities and tech startups. Whilst pension plans have recently attracted the most significant fintech investments, more is needed from the government, private investors and banks. To put things into perspective, since 2010 the Canadian fintech community attracted C$1 billion in capital since 2010. In 2014 alone, US fintech had US$9 billion. One Canadian dollar is roughly equivalent to 70 cents.
Friend or Foe?
There is evidence from the Digital Finance Institute that Canadian banks are developing their own fintech solutions in-house. The Royal Bank of Canada is one example, but it also works externally as part of the US-based R3CEV-blockchain tech consortium. Additionally, the Big Six are in fact co-operating with fintech startups, accelerators and incubators to further their digital re-invention. Here are the most prolific examples of internal and external fintech stories:
- In 1996, it launched Mbanx, the first direct-to-customer bank.
- On January 16 2016, it launched SmartFolio, a digital portfolio management service, competing with traditional players and robo-advisers, built in-house with assets of $20 billion.
- It introduced Touch ID log-in (fingerprint recognition) to its BMO mobile banking app in Canada and the US.
- In the US, Mobile Cash was made available, allowing the withdrawal of money via smartphone.
- The BMO Banking and InvestorLine portal makes BMO the first Canadian bank to give customers access to personal banking and investments accounts in one place.
- BMO DepositEdge in Canada allows businesses to deposit cheques remotely.
- BMO Spend Dynamics gives corporate card clients access to transaction data.
- Invested in Kabbage, a US-based online small business lender.
- Has an internal Digital Factory focused on tech and mobile banking.
- Supposedly looking to partner with more external fintech startups.
- Partnered with MaRS in 2015.
- Partnered with Thinking Capital, another online small business lender.
- Developed a new marketing model, with segmented marketing campaigns with more personalised offerings, supported by data analytics teams, tech and tools to enhance tailored services for sales teams.
- Developed an Android and iPad tablet app, the latter ranking #1 in the financial services category.
- Planning to develop optimised tools for access to products and services and to implement a customer relationship management platform.
- Partnering with Nymi Wristband Technologies.
- Partnered with mobile-app-giant Uber for loyalty rewards.
- Established an innovation lab at Communitech.
- Partnered with Moven, a mobile personal financial management platform.
- Looking to collaborate on a tech solution for improved customer and employee experience in Cisco’s Toronto Innovation Centre.
To Vancouver & Beyond
In the Digital Finance Institute (DFI) report, there is a further stress on fintech development in the province of British Columbia, so much so call that it is hashtag-worthy (much like in Estonia) – #BCTECH. The city of Vancouver is the main focus, as it houses some of the leading tech companies (Microsoft, EA, Amazon), as well as important fintechs, including Samsung Pay and SAP. Unsurprisingly, it is also the home of the DFI, which organises workshops, conferences and institutional education to bring Canadian fintech to the world, is a think tank for fintech and AI, encourages investment and partners for balanced regulation of digital payments and remittances.
Vancouver was actually home to the world’s first Bitcoin ATM in 2013, and by June 15 2015, there were 60 Bitcoin ATMs across the whole of Canada. What else? Vancouver-based Central 1 Credit Union provides fintech services to financial institutions such as payments and mobile banking services. The DFI notes that “the geographical position of Vancouver gives it an unparalleled advantage for trade and importantly, for FinTech to scale and exit not only to Asia but increasingly, to the Middle East.”
In British Columbia as a whole, the tech industry generated over $23 billion in revenue in 2013 and the Government of British Columbia recently launched the #BCTECH Strategy, investing $100m as part of a BC Tech Fund for early tech startups, and a Knowledge Development Fund to enable research projects.
As a whole, the FinServ industry in Canada only represents 27% of the Internet of Everything market, but 60% of Canadians are prepared to move money to access one or more IoE capabilities. All Canadian provinces have adopted regulations to facilitate e-commerce and protect e-payments, with the Bank of Canada having “responsibility for regulatory oversight of clearing, settling and recording of financial transactions.” Additionally, the Large Value Transfer System and Automated Clearing Settlement System are national systems for clearing and settlement of payments, operated by Payments Canada, based in Ottawa.
This, and the DFI, have launched national startup challenges. “The FinTech Cup”, for example, awards its winners with a $25,000 prize, and are provided a national startup platform to support their development. The private sector launched the annual Fintech Awards in 2015 to recognise key fintechs, innovators, advisors, and stakeholders that have contributed to the fintech ecosystem. In 2016, the Fintech Association of Canada was launched to engage the government with fintech to attract further investment and innovation.
To get an idea of just how expansive Canada’s fintech ecosystem is, here’s a comprehensive list for your viewing pleasure:
Investors & Accelerators
- Business Development of Canada (BDC) – Offers financing advisory services and venture capital, dubbing itself the “only financial institution dedicated exclusively to entrepreneurs”.
- Omers Ventures – Omers is one of Canada’s leading pension funds with $65billion + in net assets. It provides resources and expertise to tech, media and telecommunications startups.
- Power Financial Corporation – A management and holding company.
- MaRS Innovation lab – Based in Toronto, it supports over 1700 startups, with 300 being fintech-based. It has raised over $700m in venture capital funding.
- Communitech – Based in the Waterloo area, it is an industry-led innovation centre and a private-public partnership, founded in 1997.
- Ryerson DMZ – In Toronto, this is the top university business incubator, with entrepreneurs-in-residence, industry mentors, and 250+ startups and industry connections.
- OneEleven – A Toronto-based, data-driven tech startup scale-up hub, founded in 2013.
- Thinkubator – A collaboration between Ryerson University and Tangerine, it is an incubation space for fintech startups, founded in 2016.
Wealth management solutions & Robo-advisors
- Nest Wealth – Founded in Toronto in 2014, it is Canada’s first online wealth manager.
- Smart Money Invest – Also founded in 2014, it offers portfolio management services in equity and bond ETFs.
- Wealthsimple – An online investment startup, which expects over a billion dollars in AUM this year. It has 15,000 clients in Canada. It also offers “an affordable, millennial-focused, automated investing service”. Power Financial Corporation invested $10m in Wealthsimple.
- ModernAdvisor – an online financial advisor. If you would like to read more about Canadian robo-advisors, you can read our interview with ModernAdvisor’s Krysten Merriman here.
In 2014, 21% of Canadians made at least one online payment in the past six months (compared to 83% in China and 33% in the US). In 2015, the Canadian mobile payment transaction market grew 210%.
- Moneris – Founded in 2000 in Toronto, it offers payment solutions and processes credit and debit card transactions (more than 3 billion a year).
- VersaPay – With its HQ in Toronto and founded in 2006, it is a cloud-based payment processing service.
- TIO Networks – Founded 1997 in Vancouver, it was acquired by PayPal very recently in Feb 17. It offers a bill payment service.
- Payfirma – Based in Vancouver, and founded in 2011, it is a multi-channel payment platform (mobile, in-store, online and e-commerce).
Investment & Asset Management
- Voleo – A social trading app, allowing the user to build an investment team with peers and collaboratively manage a portfolio.
- FrontFundr – Founded in Vancouver in 2013, it is a registered financial services firm which connects investors and entrepreneurs
Here are Canadian startups that made it into the KPMG Fintech100 2016…
#36 – League – Toronto-based, founded in 2014, it lets employers enable employees with health spending accounts and group insurance plans on a mobile app platform, plus you can find health professionals. It uses a digital wallet for payments.
#42 – SecureKey – Founded 2008 in Toronto, it is an identity and authentication platform for online consumer services.
…And the ‘Emerging stars’:
- Grow – Founded in 2014, it is a “complete fintech toolkit” for financial institutions, mainly focused on consumer and SME lending.
- North Side Inc. – A financial AI solution, letting you talk directly to your financial institution, a “personalised virtual telephone banker”.
- Overbond – Founded in 2015, this Toronto-based startup brings bond market participants together, making bond issuance secure and transparent.
You’ve made it – a list as extensive as Canada itself (did you know that it spans 6 time zones? Crazy). Seemingly, if Canadian banks and financial institution are willing to allow for innovation besides their stringent (albeit successful) regulations, then the pre-existing fintech ecosystems in the GTA and British Columbia combined will be able to move ahead with full force. A fintech revolution to match the size of its home.
*Credit to a good friend of mine for the incredible painting of Ryan.
If you have any thoughts about Canadian fintech, let us know in the comments below, or you can tweet us.
Check back soon for more instalments of The Fintech World Series!