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How Covid has kickstarted Canadian fintech

Verdict | Eric Johansson | Nov 22, 2021

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Fintech innovators in Canada are enjoying their best year ever, having overcome the shocks of Covid-19. The coronavirus only seems to have whetted the Great White North’s appetite for disruption in its financial services. However, when the pandemic first hit, few dared believe the global contagion would benefit the nation’s fintech entrepreneurs.

Karim Gillani remembers those first few months well. He’s the co-founder and general partner at Luge Capital, a venture capital firm specialising in Canadian fintech startups.  “We didn’t know or understand what the future was gonna hold both short term and long term,” Gillani tells Verdict about those first months in 2020 when the virus swept across the globe.

They were not alone. Entrepreneurs, investors and other stakeholders in the Canadian fintech industry all prepared themselves for a hard year, not knowing what the pandemic would mean on both a professional and a personal level.

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Their concerns proved well-founded. The fintech investment figures from 2020 are bleak, and consequently, the amount of cash injected into the nation’s fintech scene dropped from the record $1.6bn recorded in 2019 to $608.5m in 2020, according to FinTech Global.

Canada: a fintech nation on the rise

Once the initial shock of the pandemic had subsided, investors and other market shareholders noted that the coronavirus actually benefited the sector.  With that in mind, Luge Capital started to invest more heavily in new startups at the end of 2020 and the beginning of 2021.

“We started to realise that a lot of digital financial services were actually getting a big bump from Covid because a lot of the financial services that are traditionally manual were turning digital,” Gillani says.  “We were looking at more and more companies and doing deals faster and faster,” he recalls. “Our volume picked up in Q4 and then we started off 2021 by closing three deals in a matter of 45 days.”

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Luge was hardly unique in doing so. Data from GlobalData’s Deals database suggests that there have been 47 VC deals worth a total of $2.1bn so far this year in the Canadian financial services industry. Of those, the heaviest investment has been seen in financial services firms’ ecommerce investments, with $1.19bn being put towards that end. Unsurprisingly, digitalisation, digital media and big data also enjoyed massive investment.

Covid-19 benefited Canada’s fintechs

Canada is a highly developed nation, but that’s also what’s been holding it back. Having a highly developed infrastructure of any kind – whether that’s payments, telephone coverage or broadband – means that replacing it becomes costly, especially if people are happy to get by with what’s already there.

Things are changing in the Great White North. Canadians are increasingly adopting new payment technologies. The pandemic has seen a $110.8% jump in the nation’s online shopping, the usage of buy-now-pay-later services like the ones offered by Affirm, and contactless payments with mobile wallets like Google Pay and Apple Pay.

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A Payments Canada study found that 62% of Canadians were using less cash than they did pre-pandemic, with 53% using card or mobile payments for in-store purchases and 42% of respondents actively avoiding shopping at places that do not accept contactless payments, partly out of fear that they’d catch the coronavirus by paying with physical money.

Insurance is another area ripe for disruption. The trend over the past few years in developed countries has seen digital first insurance companies or insurtech firms helping incumbent players digitalise their services with things like AI-powered underwriting. This sector has picked up speed thanks to the coronavirus, both in Canada and in the rest of the world.

“Younger generation – the millennials and Gen Xers – who are now adults, have not typically made buying insurance a high priority, particularly life and health insurance,” Gillani says. “And Covid has been a huge awareness-driver for ensuring you’re properly insured. This is a tech savvy generation”

See:  Q&A with Fintech Investor David Nault, Co-Founder & General Partner, Luge Capital

Open banking is available in the UK, Australia and Europe. It is not available in Canada, yet. Again, though, things seem to be moving. In August, deputy prime minister Chrystia Freeland welcomed the final report from the advisory committee on open banking. The investigation had looked into whether or not Canada should follow in the UK*s footsteps. Canada is now set to introduce open banking in 2023.

“Now is the time for Canadian founders to really succeed,” Gillani concludes.

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