How much of an uplift is Canada’s financial technology industry getting, and should incumbent finance firms fight them, or join them?
In late June, Victor Dodig, the chief executive of Canadian Imperial Bank of Commerce, said that the bank was investing in modernizing its own technology to keep pace with rapid innovation outside of the big five banks.
As an example, CIBC was the first large Canadian bank to sign up to Rogers’ mobile payments solution Suretap.
Incumbent financial institutions still face a challenge, though, according to Difference Capital, which invests in the financial technology sector in Canada.
“These days nimble organizations, both large and small, have begun to disrupt the Canadian financial landscape and unbundle (and improve) services that were traditionally the domain of only the largest financial institutions,” it said in a recent FinTech report.
FinTech is proving to be an exciting area for investors, because of its potential to disrupt entrenched business models with new technologies.
Michael Garrity, CEO of FinTech company Financeit, said that Canada’s relatively small market is more than enough to support a burgeoning financial technology business.
“Toronto specifically is an amazing place for FinTech and we’re in a bit of a FinTech renaissance period at the moment,” he said. “A lot of it has to do with the fact that the overwhelming majority of capital that rolls through any financial institution is centralized in a four block radius around Bay and King.”
He focuses on providing sales finance solutions for SMBs that might not otherwise have that capability. He uses mobile technologies including tablets to process applications for sales finance from customers on the spot at the point-of-sale.
Garrity’s own company is a good example of how FinTech firms and banks can work together, with one opening new markets for the other. The company works with financial institutions who provide credit for these customers, and it acts as the agent for the loan, he explained.
Sales finance has been around for years, and is typically used by car dealerships to amortize payments. The in-store credit cards used by large retail brands are form of sales finance, although Garrity promises better rates of interest for customers.
“A retailer can use Financeit to turn a big ticket item into a regular payment,” he said.
Toronto is turning into a FinTech hub, said Garrity, arguing that Canada’s tech industry economy saw the same with Ottawa, which became a hub for telecommunications. In its heyday, RIM (now BlackBerry) did the same for Waterloo.
Financeit is a resident at Toronto-based technology innovation hub MaRS, which this February launched a FinTech cluster to try and promote new companies in this category to investors. Adam Nanjee, head of financial technology at the hub, said that the momentum is growing in this sector.
“Over the past few months, looking at financial services, we saw momentum rising in three categories. The first was the sheer number of financial entrepreneurs in financial technology,” he said. “The second part is the interest from the financial institutions. The PayPals of the world, the banks, and the insurance companies.”
Finally, venture capitalists are jumping aboard, he added. Investors are typically on the lookout for startups that can disrupt entrenched business models.
In February, MaRS published an infographic detailing the state of play in Canada’s FinTech sector.