Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Lagging regulation, consumer trust inhibiting FinTech adoption in Canada
Betakit | Nov 18, 2019
Canada’s FinTech sector has seen steady growth in recent years, and there seems to be more on the horizon with increased collaboration between startups and incumbents, as well as the skyrocketing demand for emerging technologies. The latest findings from a Ernst and Young (EY) report suggest FinTech adoption in Canada has increased from 18 percent to 50 percent since 2017.
“FinTechs are no longer seen as just disruptors to the traditional financial services industry, they’re sophisticated competitors.”
“FinTech adoption has evolved significantly in Canada over the past two years alongside the evolution of customer priorities and the rise of money transfers and payments,” said Ron Stokes, EY Canada FinTech Leader. “FinTechs are no longer seen as just disruptors to the traditional financial services industry, they’re sophisticated competitors, ready to meet the changing expectations and needs of customers.”
Despite this apparent growth, FinTech adoption in Canada still lags behind the global average. That same EY report found that only 50 percent of respondents in Canada were FinTech consumers, as opposed to 64 percent globally.
See: Fintech Reports and Research
To explore how Canada can start stepping up its game in FinTech, BetaKit spoke with members of Canada’s FinTech community to determine the industry’s pain points and areas for opportunity.
The big challenge: regulation
One of the most widely-cited reasons for Canada’s lagging global position in FinTech is regulation, or a lack thereof. Stakeholders in the FinTech industry have been pushing Canada toward open banking, a system meant to give consumers more control by allowing their banks to distribute their personal data to third parties through the use of open application programming interfaces (APIs).
The broader objective of open banking is to promote a more competitive and innovative financial ecosystem, with proponents claiming it allows financial companies to augment their offerings and customer engagement, and create new channels for digital revenue.
See: Cambridge: Global Regulator Survey Results – Regulation of Alternative Finance is Key to Make Sector Safe to Scale for the Masses
Although actors at various levels of government are working on regulatory reform projects, including reform that would enable activity by both FinTechs and financial institutions, Canada has made slow progress.
“There is no doubt that many of the federal, provincial, and territorial regulatory regimes that touch FinTech ecosystems can be improved,”
said Stephen J. Redican, a partner at law firm Borden Ladner Gervais, in an article on the firm’s website. “We need to be sure that regulations that were designed for an earlier time are appropriate for an increasingly digital economy.”
Koho CEO Daniel Eberhard told BetaKit earlier this year that the regulatory environment in Canada has made it much more difficult to succeed as a challenger bank, as regulators have prioritized managing risk over fostering a competitive environment.
Britton agreed, stating, “the only thing stopping a challenger bank is the regulation … if you’re a small business or a consumer, [the regulations] really limit innovation.”
Britton added that financial institutions hold so much power in Canada and have done so for so long, that they will likely be able to drive the change faster than the regulators. She expects the big banks will likely bring open banking to market with their own needs in mind. She said despite Canada lagging behind the rest of the world in open banking, a regulatory driven change would be better for the industry because the government should be setting clear and fair criteria around open banking.
See: Singapore Fintech Week: Data, technology and policy coordination – BIS Speech
At Elevate Tech Fest last month, Alexandra Nuth, managing director of ATB Financial’s new digital offering Brightside, told BetaKit she would also like to see the banks set more of a precedent.
“It’s a long process, and our regulatory changes take a really long time. In the short term, I’d actually [say] banks need to step up,” Nuth said. “It does take a lot of work, you have to change your offering model, you have to change your tech stack, you have to change the way that you’re approaching your business.”
“I think that’s where you’re going to see a lot of a lot of pressure in the Canadian market,” Britton said. “[Open banking] will create a more competitive landscape in Canada if they’re able to bring it to market. I think the argument right now is – will it be an industry-led change, or will it be a regulator-driven change?”
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