Competition Bureau launches FinTech market study

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Competition Bureau | May 19, 2016

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Study will examine innovation in the Canadian financial services sector

May 19, 2016 — OTTAWA, ON — Competition BureauThe Competition Bureau launched a market study into technology‑led innovation in the Canadian financial services (FinTech) sector today.FinTech companies are using technology to change the way that Canadians consume financial services, such as making payments or transfers, investing and borrowing funds. At the touch of a screen on your tablet or smartphone, FinTech innovation can reduce costs and facilitate direct transactions without the need for intermediaries. These innovations provide more choice by unbundling existing products and services and introducing new ones: they can result in more efficient services, lower fees and greater savings for Canadians.The FinTech sector is evolving rapidly as new products and services are being unveiled and the number of start‑ups entering the industry grows. FinTech has the potential to disrupt the financial services sector, spur innovation and generate benefits for individuals and companies across Canada.The Bureau’s market study will focus on how innovation is affecting the way consumers and businesses use financial products and services. The study will explore the competitive impact that FinTech is having on the industry, barriers to entry faced by companies, and whether there is a need for regulatory reform to promote greater competition while maintaining consumer confidence in the sector.

Interested stakeholders are invited to make a submission to the Bureau.

Quick facts

  • In 2014, the financial services sector accounted for approximately 10% of Canada’s gross domestic product. The banking sector alone employs over 280,000 Canadians.
  • The study will examine peer‑to‑peer banking, e‑wallets, mobile wallets, mobile payments, crowdfunding and online‑based financial advisory services.
  • As part of its mandate, the Bureau participates in a wide range of activities to promote and advocate the benefits of a competitive marketplace.
  • Greater competition leads to innovation that can result in lower prices and increased choice for consumers.

Market Study Notice

Notice of Study

  1. The Competition Bureau (Bureau) is commencing a market study into the competitive landscape for new, technology‑led innovation and emerging services in the Canadian Financial Services Sector (the Study).
  2. The Study supports the Bureau’s Strategic Vision 2015‑2018 to promote competition through market studies and the analysis of innovation and its impact on competition.

Role of the Competition Bureau

  1. The Bureau enforces and administers the Competition Act (Act). As part of its mandate, the Bureau participates in a wide range of activities to promote and advocate the benefits of a competitive marketplace. More competition generally leads to lower prices for consumers, as well as increased choice and innovation.
  2. Among the tools the Bureau uses to advocate for competition are market studies. Market studies allow the Bureau to study an industry in depth, and understand the competitive dynamics in that industry. Market studies are a useful tool for diverse stakeholders, including policy makers, industry participants, and consumers.

Purpose of the Study

  1. The Study will enable the Bureau to advise and guide financial sector regulators and other relevant authorities on how to ensure that regulation does not unnecessarily impede innovation and competition in the sector.

Premise of Study

  1. Competitive markets deliver significant benefits to the economy. Competition makes the economy more efficient; gives small and medium businesses an equitable chance to participate in the economy; provides consumers with competitive prices, product choice, and the information needed to take decisions; and drives innovation.
  2. The Bureau operates on the assumption that competition is good for the economy and those who participate in it, and that regulation should be minimally intrusive on market forces—while addressing legitimate policy objectives—allowing competition to drive innovative forces and improve outcomes for Canadians.
  3. At the same time, market failure does happen. In such circumstances, regulations may be developed to prevent certain market conduct or outcomes. Regulation is also used as a tool to protect against negative externalities that might otherwise be unaddressed by the market, or to prevent some public harm. An unintended consequence of overregulation is that competition can be restrained and the efficiency of the economy suffers. This consequence can be exacerbated during periods of rapid innovation and technological change as new business models challenge the status quo.

Why Choose the Financial Services Sector?

  1. The Bureau decided to study the financial services sector for three primary reasons. First, financial services were identified during the Bureau’s public consultation on potential advocacy initiatives in 2013.Footnote 1 Second, the sector itself is an important pillar in the Canadian economy, contributing approximately 10% of Canada’s gross domestic product in 2014, and the banking sector alone employs over 280,000 Canadians (2014 figures).Footnote 2 Third, it plays a significant role in the day to day life of the majority of Canadians, allowing them to deposit wages, pay rent, save, borrow, invest, transfer and spend money.
  2. Further, Canada appears to be lagging other countries in adoption of FinTech (financial technology). A recent report by Ernst & Young LLP shows that in Canada 8.2% of digitally active consumers have used at least two FinTech products within the last six months, in the form of money transfers and payments, and savings and investments, in comparison to 15.5% globally.Footnote 3
  3. Seeing an opportunity, new entrants are using technology to innovate and change the way Canadians bank. Technology can be used to reduce costs, transact directly without the need for intermediaries, and provide more choice by unbundling products and services. By bringing these technologies to market, FinTech companies are promising a better consumer experience, lower fees and greater savings for Canadians.Footnote 4
  4. The FinTech landscape is rapidly evolving as new products and services are being unveiled and the number of start‑ups entering the industry grows. FinTech holds the potential to disrupt financial services, spur innovation, and generate benefits for individuals and companies across Canada.

Key Questions for the Study

  1. With the continued and rapid speed of innovation in the digital economy, tools designed for yesterday’s marketplace may not work well tomorrow.
  2. When innovation is unnecessarily stifled—by regulation or otherwise—the result can be a less competitive and less dynamic marketplace. Similarly, without conscious oversight, when heavily regulated markets become less regulated, consumers can be left exposed without the tools or information to make sound decisions.
  3. With these potential risks in mind, the Study will aim to answer the following key questions:
    • What has been the impact of technology‑led innovation on the competitive landscape? What is happening to competition? How will innovation impact competition in the future?
    • How will consumers benefit from FinTech?
    • What are the barriers to entry, expansion, or adoption for FinTech companies? Are they regulatory or structural?
    • What is the current state of the regulatory framework for financial services? Does it support or inhibit competition and innovation? Are changes required to encourage greater competition and innovation in the sector?
    • Are the consumer protections in place today enough to adapt for the future? What additional protections should be put in place for consumers? Is there a need for greater transparency in fees?
    • What issues should be considered when developing or amending regulations to ensure competition is not unnecessarily restricted?

Scope of Study

  1. The Study will focus on new, technology‑led innovation and emerging services in the Canadian financial services sector. The Bureau intends to focus on innovations that affect the way Canadian consumers and small and medium businesses commonly encounter financial products and services, including:
    • peer‑to‑peer banking (e.g., peer‑to‑peer lending and transfers);
    • e‑wallets, mobile wallets and payments;
    • crowdfunding, in particular for small and medium‑sized business capital; and
    • online‑based financial advisory services (also known as "robo‑advisors").
  2. In any discussion of FinTech, it is difficult to escape mention of Blockchain technology and its potential impact on financial institutions and the sector as a whole. The Study’s focus, however, is on consumer‑facing activities, and Blockchain technology does not fit that mould. To the extent that stakeholder consultation reveals that Blockchain technology is likely to have a direct impact on competition, in particular with respect to those products and services noted above, the Study will explore that impact, as well.
  3. The Bureau does not intend to study:
    • insurance (property and casualty, travel, and health);
    • currencies and crypto‑currencies (e.g., Bitcoin);
    • payday loans;
    • loyalty programs;
    • deposit taking;
    • accounting, auditing, and tax preparation and services;
    • large corporate, commercial or institutional investing and banking (e.g., pension fund management, corporate mergers and acquisitions); and
    • business‑to‑business financial services beyond those services noted above (e.g., cash handling).
  4. As the Study progresses, the topics within the scope of the Study may change (including adding, substituting, or removing topics). In the event that the scope is changed significantly, the Bureau will update this notice and advise stakeholders via this portal of the changes.

Information Gathering

  1. Over the course of the Study, the Bureau will gather and analyse information from various sources. The Bureau will consult academic literature, review the experience of other jurisdictions (where applicable), consult experts, market participants and engage with key stakeholders.

Timeline

  1. The Bureau will be working toward the following timeline:Spring 2016:
    Announce the Study at the Spring Canadian Bar Association meeting and via the Bureau’s online Advocacy PortalSpring/Summer 2016:
    Stakeholder engagement and researchFall 2016:
    Compile and analyse information
    Decision to continue/discontinue or re‑scope the Study

    Spring 2017:
    Publish report

  2. The Bureau will analyse the information gathered from its stakeholder engagement and research. Based on the information before it, the Bureau will decide whether there are one or more significant competition issues that warrant further research and publication of a report. In all circumstances, the Bureau may use its discretion to discontinue the Study at any time. If the study is discontinued, stakeholders will be notified directly and this portal will be updated with an explanation of the reasons for discontinuing the study.

Getting Involved

  1. Stakeholders with an interest in FinTech or the financial services sector are invited to provide written or oral submissions on the Study or on specific issues relevant to the Study. Please provide written submissions by mail, fax, or email to the officers identified below. If you would prefer that the Bureau contact you for an oral interview, please provide your contact information. The Bureau would appreciate receiving submissions and/or indications of willingness to participate in an oral interview before June 30, 2016, to provide adequate time to review and conduct follow up interviews as necessary.
  2. The contacts for this Study are Alexander Jokic (alexander.jokic@canada.ca) and Éric Chalifoux (eric.chalifoux@canada.ca):

Interested stakeholders are invited to make a submission to the Bureau.

Alexander Jokic
Senior Competition Law Officer
Competition Promotion BranchPhone: 819‑997‑2834
Fax : 819‑953‑2931
Éric Chalifoux
Competition Law Officer
Competition Promotion BranchPhone: 819‑953‑7771
Fax: 819‑953‑2931
Competition Bureau
Place du Portage Phase I
50 rue Victoria
Gatineau, QC
K1A  0C9

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more at www.ncfacanada.org.

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