NCFA Canada | By Gary Buisansky | May 11, 2018
It's not every day we wake up to hear that the Ontario Government has committed to a loan of 3 million Dollars for small business. A market woefully underserved by traditional lenders.
Beyond the benefit this will have for small business, it provides testimony to the National Crowdfunding & Fintech Association of Canada’s continued advocacy for financial and regulatory support to the sector. (You can read the NCFA’s March 2018 submission to Finance Canada here and Lifting the Veil on Peer to peer Lending in Q1 2016 here).
As an industry, while we navigate the regulatory hurdles, there are some lessons we can take away from this, to better help ourselves and the Canadian market. There are also several Canadian success stories which we should not lose sight of. AI, Crypto currency and blockchain, are all thriving in Canada.
Ontario Government supports small business
Lending Loop, an active member of the NCFA, has been making the news lately with an announced 2-year pilot project partnership with the Ontario Government for a $3 million loan.
If you're not familiar with Lending Loop, it fills an important void in the market, connecting small businesses and Canadian retail investors, willing to lend to them.
Through the Lending Loop platform, small companies can finance loans at reasonable rates, often within days of their loan application.
These borrowers face very real challenges securing funding in the Canadian market with debt finance to SME's considered very risky. Where loans are made, they usually come with eyewatering interest rates, reflecting their often-limited track record, lack of financial information and availability of collateral.
Loans provided by Lending Loop will now have a 10% government participation, with the government portion of the loan amount treated like any other; the principle amount will be repaid together with interest.
The anchor investment by the Ontario Government will enable total funding of around $30 million to Ontario's SME's providing welcome relief to an under banked market and provide leveraged economic benefit into the broader economy.
This is a clear win for all parties. But what can the greater fintech community learn from this success?
The importance of government relationships and support for fintech companies
Cato Pastoll, CEO and Co-Founder of Lending Loop, makes the point that fintech companies underestimate the importance of government relationships, particularly those in the startup phase. He suggests:
"It’s up to you to educate the regulators about your business and what societal benefits it provides. You need to make yourself heard. For the most part, fintech entrepreneurs do not make it a priority to try work with government.
It can be vital, particularly in regulated industries, to find the time and make the effort. The government’s role is to hear the challenges industries and people are facing and want to understand the dynamics of the market".
In his experience, regulators and government only hear part of the story and if fintech does not speak up, then regulators are left with only the incumbents viewpoint.
Government recognizes that Canada can play a bigger game
In a study released in December last year, the Canadian Competition- Bureau, observed:
"...other jurisdictions have more welcoming and innovation‑conducive regulatory environments than Canada. The United Kingdom, the United States, Singapore, Germany, Australia and Hong Kong have been identified as leading fintech hubs based on talent, funding availability, government policy and demand for fintech".
This contrasts with the position in Canada, where regulatory gaps, uncertainty and lack of consistency across provinces prevail.
An 11-point plan has been proposed, that includes harmonizing regulation across geographic boundaries, and identifying a fintech policy lead for Canada. These solutions would go a long way to addressing key roadblocks in the growth and development of Canadian fintech. Additionally, Craig Asano, Executive Director of the NCFA, makes the point that:
“To help verify Canada’s competitive position relative to other jurisdictions, additional resources and support are needed for data collection and education. This will help quantify the number of fintech companies, capital investments, financings and loan volumes of new funding models, and the time and cost spent on compliance.
The Canadian government is extremely well placed to support the sector. The Business Development Bank of Canada (BDC) is the largest VC fund in the country with over $1 billion in capital under management. Most Canadian VC funds have government money, either directly through BDC investing in the funds or indirectly through funds of funds that in turn invest in VC's.
The significance of government involvement and ability to support and foster a sustainable fintech sector, with market confidence is critical. The C.D. Howe Institute makes the case for a suite of recommendations that, if adopted, will better position Canada to take advantage of its investments in the technological revolution that is underway throughout the economy.
Right way round regulatory sandboxes could offer short term benefits
While Canada makes use of regulatory sandboxes to help start-ups test new products or services in a controlled environment, there is room to improve the model. Unlike competitor countries including the UK and Australia, which offer flexible and proportional regulatory frameworks, Canada follows a more paternalistic model.
Cato Pastoll says the Canadian model has it the wrong way around.
In Canada one must adjust your business to fit in with the existing regulatory models rather than forcing regulators to figure out how best to regulate.
Getting this right is critical in his view, particularly if we are going to compete with other countries.
What this requires is a mind shift followed by active dialogue between stakeholders and industry to work out a better framework for regulatory sandboxes.
That said, there are some areas of fintech where accelerator programs and innovation hubs are showing strong results.
Artificial Intelligence and Blockchain is accelerating in Canada
KPMG International in their Pulse of Fintech Q4'17 Report, highlights AI as a major driver of innovation in the Americas, particularly in the US and Canada.
It refers to Canada as, "a hotbed for fintech innovation", and goes on to say that Canada’s participation in the space is getting more notice with world-class fintech hubs in Canada rapidly maturing with increased attention from US investors.
Crypto currency and blockchain related ventures are also recognizing Canada as a friendly jurisdiction. With strong investor appetite available, crypto mining companies, Hut 8 Mining, BitFury and HIVE have all come to market to capital through the TSX-V.
More recently, the Ontario Securities Commission consented to the listing of the first Canadian Bitcoin ETF on the TSX under the ticker, HBLK which invests in companies involved in blockchain and distributed ledger technologies.
And over the past few days, Huobi a Singapore-based bitcoin exchange, (and the world’s number three exchange by 24-hour volume), has stated its intention to expand its operations to Toronto.
General Manager of Huobi, Ross Zhang stated;
"Canada is emerging as a leading blockchain nation, and Toronto is set to become one of the next most active blockchain hubs across North America".
Canada's fintech time is now
This serves to demonstrate that If Canada is to capitalize on the wave of fintech opportunity washing our shores, we need to act swiftly and get our regulatory house in order.
Without the need to reinvent the wheel, we can borrow from global best practices. We must continue to lobby for a unified regulatory framework and insist that the Federal Government champion fintech. Fintech after all has the wherewith-all to make a marked difference in our economy.
It would be a sad day if in years to come, we look back and wonder how we let slip what could have been ours to have.
Gary Buisansky is a freelance writer for NCFA and founder of Coin My Copy which specializes in writing marketing content, including white papers, website copy, articles and case studies for fintech and traditional finance companies.
The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with cryptocurrency, blockchain, crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders globally. NCFA Canada provides education, research, industry stewardship, services, and networking opportunities to over 1700+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: ncfacanada.org