Global fintech and funding innovation ecosystem

By sitting on the sidelines in fintech, Canada risks losing golden reputation in banking

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The Globe and Mail | RAY SHARMA | April 18, 2016

Alternative lenders in Canada fintech 300x248 - By sitting on the sidelines in fintech, Canada risks losing golden reputation in bankingIt’s no secret that fintech is one of the hottest technology trends of 2016.

According to KPMG, $13.8-billion (U.S.) was invested into North American venture-capital-backed fintech companies in 2015, double that from 2014. With record levels of funding, the hype has never been higher, but the hype has not translated into dollars in Canada.

The disparity between U.S. and Canadian funding goes unreasonably beyond the typical 10:1 ratio of our respective economies. In fact, the gap has risen so dramatically that it raises the concern that Canada and its citizens risk losing out on one of the most important innovation cycles in the history of finance.

Last week, the global leaders of finance descended upon San Francisco to attend LendIt (see Lending Club Opening Keynote, Renaud Laplanche, and Peter Thiel of Pay Pal), the world’s largest online lending conference. While hosting a panel on Canada and fintech trends, it became apparent to me that we are dramatically behind the United States in almost all respects.

A report released this week by KPMG in conjunction with major academic institutions indicated that the U.S. market volume for alternative finance was $113.43 per person compared with $5.82 for Canada – a 95-per-cent discount. Furthermore, the report indicates that more than half of the Canadian volume is attributable to charities or product crowdfunding, implying that the true gap is even wider.

Part of the disparity falls on relatively tougher credit regulations around peer-to-peer lending. However, it is important also to acknowledge that U.S. financial institutions play a major role in developing the market. While Canadian banks have begun to show a willingness to participate, a much deeper relationship between banks and startups is needed.

Building software expertise and partnerships

Increased fintech investment in Canada is also important for consumers. Competitive forces benefit Canadians through enhanced services and lower prices.

J.P. Morgan boasts employing more software developers than Google parent Alphabet Inc. and 25 per cent of Goldman Sach’s employees build technology tools and platforms. With these capabilities, J.P. Morgan and Goldman Sachs are able to invest and work with dozens of fintech startups to bring new solutions to market. For Canadian banks to think the same way, they need to build their own capabilities at the same scale.


A McKinsey report released last year predicted that while global banking profits exceeded $1-trillion for the first time in 2014, by 2025 between 10 and 40 per cent of global retail (consumer lending, mortgage, small business lending, retail payments, wealth management) bank revenues are at risk because of fintech startups. Also concerning are studies that show millennials place a great deal of trust in technology brands like Google, Apple and Amazon. A 2014 Accenture study found that almost three-quarters of 18-to-34-year-olds in North America said they would be likely to bank with at least one non-financial services company, a scary prospect for banks.

We have seen the early indications of fintech technology partnerships in Canada. The launch of development labs is a first step, but banks should be involved on a larger scale. Launching countrywide accelerators and investing in large batches of seed-stage startups will also help foster innovation. Barclays is one of the best examples: It has aggressively embraced accelerators and has now opened up four centres of fintech excellence around the world focused on finding the next batch of startups.

For companies in their growth stage, financial institutions need to be willing to partner closely to provide operating capital. Power Financial has invested in robo-adviser Wealthsimple, online lender Borrowell Inc. and most recently is pouring more dollars into a mobile money application developed by Koho Financial Inc. These partnerships ultimately benefit institutions when they seek to make strategic acquisitions.

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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 About Us or visit

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