Financial technology, or fintech, is one of the world’s fastest growing economic sectors. According to Deloitte’s 2016 review of the world’s fintech hubs, US$17.4 billion was invested in fintech globally across 1,436 deals that year, with China and the US leading as the largest markets. Fintech encompasses a variety of technologies that enable access to financial services in new, more efficient and secure ways.
Canada hosts a healthy and vibrant breeding ground for fintech: Deloitte calculates that over $183 million was invested in fintech in Canada in 2016. Meanwhile, Payments Canada reveals that more than 80 fintech companies across Canada have attracted nearly $1 billion in investment since 2010.
But despite the promise for fintech in Canada, obstacles prevent the industry from reaching its full potential. At the Munk School at the University of Toronto, the Innovation Policy Lab’s Creating Digital Opportunity project found that when Canadian entrepreneurs develop fintech companies, they struggle to expand on a global scale. Too often they leave the country to pursue funding and larger opportunities elsewhere, thereby depleting Canada’s innovation talent. We need more coordination, specifically among the enduring Canadian silos of business, education and government, to help fintech startups scale up in Canada.
To nurture coordination in the sector and incentivize innovation, Canada needs a national fintech strategy to identify trends, areas of opportunity, regulatory obstacles and challenges, and investment priorities. A distinct national fintech strategy with its own budget and strategic leadership would propel the coordination among the fintech players in Canada needed to drive the sector to become more competitive globally.
We recommend five straightforward initiatives that could arise from this strategy.
First, we need an industry association for fintech. This should be an independent nonprofit organization, backed by Innovation, Science and Economic Development Canada and led by a recognized professional in the sector.
The association should be membership-based with tiered pricing to accommodate all ranges of companies, from early-stage fintech firms that would pay the lowest annual fees to financial services institutions that would pay the largest annual membership fees, because they benefit from innovations brought in by the smaller startup members. Fees would allow the association to hire staff responsible for further membership growth, and to organize an annual Canadian fintech summit. The summit could advocate for policy and regulatory change and act as a rallying point for Canada’s fintech sector.
Second, continued central bank participation is essential to the development of a strong and healthy fintech sector, as we have seen in both the UK and the US. The Bank of Canada has already been working with Payments Canada (the body that oversees essential payment systems) on a fintech experiment called Project Jasper. The project is looking at the “usefulness in all corners of the financial system” of distributed ledger technology (DLT), a tamper-proof system that runs on multitudes of computers simultaneously (the foundation of bitcoin). Collaborating with the private sector on a concrete DLT application, the project has produced important insights into the business imperatives of users and providers of financial services to the Bank of Canada.
Third, Canada’s regional fintech advisory committees (such as in Quebec and in Ontario) should consider a model that combines both financial regulation and economic development activities. In the absence of a central regulator in Canada, this would at least cut down on the multiple layers of bureaucracy on a regional basis.
Fourth, the Bank of Canada and the Department of Finance should together oversee federal initiatives aimed at promoting the growth of fintech. This should include the creation of a federal “super sandbox.” These types of initiatives — including one recently launched in Ontario — relax regulations so that fintech startups can experiment with different models and products.
Having these two bodies take the lead would help to focus some of the federal government’s innovation attention and energy on fintech specifically. They could work with the regional provincial regulatory agencies to help foster fintech progress across the country.
Finally, global engagement with other fintech hubs around the world is important as it promotes learning from both the experience and the success of other countries. Canada is often criticized for the lack of global interest that its technology ecosystem generates. This is a weakness that must be addressed in any effort to make Toronto and Canada an attractive fintech destination for global firms.
Sibos, the world’s leading financial services industry conference, came to Toronto last October. Officially the largest Sibos conference to date, with over 8,000 delegates, it presented a significant opportunity to highlight Canada’s, and specifically Toronto’s, fintech ecosystem. It was also a chance to generate investment interest and enable conversations around prospective global collaboration and partnership possibilities. China, for example, had its largest bank representation at Sibos yet. China is the world’s largest fintech market and a nation with which Canada has been exploring opportunities for collaboration, so Sibos provided a great meeting place for knowledge exchange, yet nothing appeared to emerge from this opportunity. It is most unlikely that Australia, host of Sibos 2018, will make the same mistake as it aggressively markets itself as a significant global fintech hub.
With increased coordination and cooperation among regions and regulatory bodies, ideally coordinated by a fintech association, Canada can and should build its fintech sector to be more globally significant and competitive. The economic advantages and efficiencies that fintech brings to existing industries are considerable. Furthermore, in the developing world, where issues of financial exclusion abound, fintech has the potential to address some of those barriers. Canada’s foreign policy focus on improving the lives of girls and women makes it well placed to take a leading role in this area of financial innovation.
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