From Global Leader to Follower, is Canada losing its FinTech edge?
Holt Accelerator | Jan Arp | Jan 6, 2021
Holt’s mission is to develop a more competitive fintech ecosystem in Canada to foster financial innovation. An overlooked focused area. Our research from hundreds of Holt Advisors, our digital events, and pre-covid travels across the globe discovered three key pillars are affected, resulting in Canada's positioning trending from global leader to follower.
Regulatory frameworks: A crucial hurdle on the path of Innovation?
In an industry that moves exponentially fast, regulation can cause friction. It creates barriers through uncertainty in the development process, unclear regime, and setting primary conditions that become obsolete quickly.
See: Advancing Competition in a Changing Marketplace
Take the drawn-out and delayed Open Banking process. As a result, our market isn’t benefiting from fintechs already serving this infrastructure. Why didn’t we continue to drive forward ten years’ worth of research on CBDC instead of waiting for other nations to catch up and pass us? While Open Banking gets most of the attention, other fronts would benefit from improvement. Streamlining inter-provincial regulations, improving market access for innovators, and loosening restrictions on banking/payment licenses (similar to Europe) would also help build a more competitive fintech ecosystem.
How can we create the support systems for growth stage fintechs, who are often left out of the current ecosystem?
The government must lead by example and act as the first customer to particular homegrown fintechs (e.g., PPP program in the US). They must also develop a system of incentives for these incumbents to work with fintechs and modernize themselves, improving venture investing liquidity ratios. Furthermore, stakeholders within Canadian fintech need to be included at the table when these new rules are being drawn up. These discussions need to be transparent and have to result in tangible action items with a set timeline.
Corporate incentives and security are not mutually exclusive.
Stifling innovation means it will eventually die off. Consequently, our financial institutions will be reliant on financial technologies from the US, Europe, or elsewhere as they struggle to catch up with the rest of the world.
Financial institutions play a huge role here. They must look into improving outcomes of innovation objectives, with data-driven marketing being an activity of said objectives but not the primary aim. For instance, setting goals and then optimizing processes to achieve these results and leverage. From here, diversifying your tactics to achieve these results (i.e., CVC, hackathons) are all welcomed as long as there’s alignment to the ultimate objective.
See: NCFA Response to the Modernizing Ontario’s Capital Markets Consultation Taskforce
Security is and should always remain a top priority. While it’s fair game to make sure system vendors (i.e., fintechs) are well compliant here, there should be budgets for fintechs to help them deliver their solution securely to the banks’ standards. Additionally, there are many opportunities around data processing and several secure methods to analyze a Financial Institution’s data without jeopardizing its customers’ privacy and security.
Inefficient Distribution of Financial Allocation
There are too few options for startups in need of venture capital when considering stage and industry. Over the short-term, there is a reluctance to invest, even with a decrease in valuation. You notice this behavior in early-stage financing (especially seed), which ultimately defeats the purpose as it takes capital to build startups.The government must continue to support R&D programs to help our startups, a significant funding source for early-stage companies, while also supporting the woes in commercializing R&D properly in Canada. Rubber stamping of IRAP has been very helpful, but we need greater transparency around who is taking advantage of it, and who has been hindered.
See: Monopoly-Friendly Canada ‘Does Not Treat Competition Policy Seriously’
Improved targeting programs for early-stage startups is required, as France did with a €4B plan to support startups, or better streamlining the abundance of government investment programs.
The Canadian people have shown great tenacity and teamsmanship throughout the pandemic and in combination with directed efforts and precise planning Canada has an amazing pool of talent that can continue to help build a robust ecosystem and become a global contributor in financial innovation.
About the author: Jan Arp, Founding Managing-Director at Holt, is a global expert in this space and works towards helping Canadian Financial Institutions & Services embrace financial innovation in a meaningful way. One that pays off for both their customers and bottom line.
This article appears as a featured article in NCFA's digital magazine, Fintech Confidential (Issue 3 Dec 2020). Click to read the latest thought leadership, insights and trends about Fintech in Canada:
Checkout NCFA's digital magazine, Fintech Confidential (Issue 3, Dec 2020) --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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