As technology took off and venture capital poured into Silicon Valley, a slew of Fintech apps flew out of Western countries, changing the way new generations think about their money. Fintech – or financial technology – is the intersection of technology and finance, revolutionising how businesses and consumers manage their money. Fintech products like Stripe, Mercury, Starling and Robinhood have reshaped and simplified a behemoth industry marred with regulation and risk.
But while Canadians enjoy the likes of Uber and AirBnB, what’s stopping us from being able to CashApp our friends and invest with apps like Robinhood? Why is Canadian fintech falling behind? Most importantly, what can we do about it?
It’s important to note, our Fintech space isn’t as barren as our arctic tundra. With the recent acquisition of property platform Properly and Quickly raising $10 million for its early payment platform, not all is lost. But as investment in Canadian fintech firms is still hovering around early-pandemic levels, Canadians will stay lacking access to leading firms like Mercury or Venmo. A quick google for “Best startup banking Canada” will tell you much of what you need to know – there isn’t much to see up north.
But while Canadians enjoy the likes of Uber and AirBnB, what’s stopping us from being able to CashApp our friends and invest with apps like Robinhood?
We aren’t so like our southern neighbours, at least not when it comes to finance. With tighter regulations and the “Big 5” banks controlling an overwhelming share of Canadian capital, we lack the regional diversity of the world’s financial superpower.
What’s more, Canadian financial institutions lack the regulatory freedom of our American neighbours. With regulators requiring firms to collect increasingly more customer data in the interest of consumer protection, the bar to entry is getting increasingly higher north of the border.
To add to the complication, overlapping regulatory requirements between provinces makes accessing a country-wide market a tricky endeavour. Yet as cash transactions have declined 59% since 2017, online transfers have increased 328%, highlighting the raw demand for fintech products that work.
For example, as US firms introduced peer-to-peer lending models, the Canadian rendition of this product couldn’t navigate within the rules set out by the Ontario Securities Commission.
Canadian consumers are yearning for speed and simplicity, while Finance Canada doesn’t seem so interested.
An obvious barrier to US-like growth is that 38 million Canadians can only build – and buy – so much, making Canada a market with low strategic importance. But it’s not for lack of talent that Canada has fallen behind. Canada, of course, harbours a world-class education system and enjoys a steady influx of international students poised to deliver a new wave of innovation. We’ve got the startups to prove it too, with firms like Shopify and Bolt becoming household names.
Canada is host to some of the world’s top engineering, mathematical, and business programmes, ensuring a steady flow of brilliant minds ready to create financial products that Canadians love. What we don’t have, however, is the right environment to do it.
Canadian consumers are yearning for speed and simplicity, while Finance Canada doesn’t seem so interested.
It’s not entirely the regulator’s fault though. Canada came out of the 2008 financial crisis largely unshaken, and therefore largely unchanged. As business models weren’t forced to adapt in the face of crisis, consumers went on much like before. We didn’t suffer the same forced change as other large financial centres.
If there is hope for the future, Canadian regulators need to step up their game to foster innovation in the sector – and this wouldn’t be the first example of regulation-led tech innovation in Canada. For example, Montreal’s game development industry is disproportionately large due to attractive tax-breaks for firms. By increasing their knowledge of the space, regulatory frameworks can change for the better; not simply acting as risk management tools but moulding themselves to the future.
The Canadian Government already has programmes to this end, such as the Canadian Technology Accelerator global business development programmes in New York and Hong Kong. Such programmes, launched by the Trade Commissioner Service, aim to connect Canadian startups with people and organizations who have the knowledge and experience that the Canadian industries lack.
There appears to be some consensus on how regulatory restructuring should unfold. A 2018 market study by the Competition Bureau led to several recommendations from financial institutions, startups, agencies, and leading voices in the fintech space. The study recommended the modernization of Canada’s payment systems and the overhaul of the existing regulatory framework.
Recommendations point to new regulation that should be technology-neutral, principles-based, function-based, and proportional to risk. What’s more, a Deloitte publication points out that the Canadian government should not rely on existing structures made for previous generations of financial infrastructure – calling for entirely new regulation fit for today’s technology.
Despite poor adoption by Canadians, and a general consensus that Canada is lagging behind the world’s intellectual and technological powerhouses, a new regulatory system and a slate of incentives for innovation and risk taking offers a glimmer of hope that all is not lost for Canadian fintech.
