Canadian fintech

Financial technology, or fintech, has been around for many years, but only in recent years has it been moved into the mainstream. In fact, fintech has become so popular that global consultancy EY released its first-ever Fintech Adoption Index report at the end of 2015. One of the key findings in the report was the prediction that consumer adoption of fintech solutions would double by the end of 2016.

Of the six countries studied by EY, Canada had the lowest level of fintech adoption. Only 8 percent of Canadians surveyed were found to be using fintech products or services. The good news for Canada’s growing fintech sector is that EY also reported that the country’s fintech adoption rate could triple in 2016.

Call for Collaboration to Accelerate Fintech in Canada

In response to the threat of losing customers to these new fintech entrants, some Canadian banks are investing in fintech through partnerships and sponsorships, and some even going as far as developing their own technology hubs.

“When it comes to innovation, Canada has established itself as a leader on the world stage,” said Jon Jones, President at Trulioo. “We are now poised to become a global fintech player, but there needs to be much greater and closer collaboration between all parties – lawmakers, regulators, banks, and fintech – in order for Canadian fintech to reach its full potential.”

While other countries like Singapore, Australia, the U.S., and the UK continue to push for greater collaboration between regulators and fintech, there hasn’t been much activity from the Canadian federal government or regulators regarding future plans to build and strengthen the country’s fintech industry. This has been the case, until now.

Building a Strong Case for Canadian Fintech

The Competition Bureau of Canada, the national regulator responsible for ensuring fair competition within the Canadian marketplace, announced in May 2016 that it is engaging in a market study that will look into “the competitive landscape for new, technology-led innovation and emerging services in the Canadian Financial Services Sector”. Canada appears to be lagging behind other countries in adoption of fintech, which means there’s an opportunity for new entrants to innovate and change the way Canadians bank.

In its study, the Bureau will examine how competition in the financial services sector is impacted by fintech innovation. Other areas that will be explored include consumer benefits, barriers experienced by fintech startups, the current state of Canada’s financial regulatory regime, and whether or not changes are needed to regulations in order to stimulate greater competition and innovation for financial services.

For the sake of creating a more focused study, the Bureau has decided to limit its scope to products and services like peer-to-peer lending, mobile wallets and payments, crowdfunding, and robo-advisers. Although the blockchain is intrinsically connected to most discussions surrounding fintech, the Bureau will not look at this technology because it desires to focus on consumer-facing activities. Typically, applications of blockchain technology for banks only involve the banks themselves for internal purposes or for transactions at the institutional level.

As part of its information gathering process, the Competition Bureau of Canada is accepting submissions from stakeholder with an interest in fintech or the financial services sector regarding its study. Interested parties can either send a written submission or contact the Bureau to request an oral interview to discuss any relevant issues. All submissions or requests for interviews should be sent before the end of June 2016.

Time for Regulatory Changes in Canada

Although Canada’s federal government is only beginning to study its home-grown fintech industry, others have already carried out research and presented their findings. The Munk School of Global Affairs at the University of Toronto released a report in November 2015 that highlighted the need for a fintech ecosystem in the Greater Toronto Area (GTA).

One of the most telling findings in the University of Toronto report was that Canadian regulations inhibit innovation by creating an environment of uncertainty regarding the adoption of new technologies. In the U.S., startups operate on the “presumption of permission”, where companies could use new technology unless it was found to be inadequate. This is sharply contrasted with Canada, where there is a pervasive “presumption of prohibition”, meaning that new technology would not be allowed, even in the case where it proves to be useful.

Interestingly, the industry executives interviewed for the report said that the nature of Canada’s regulatory regime could provide an advantage. One interviewee said that Canada has some of the most progressive legislation for modern financial transactions. That being said, there is still a need for regulations to allow for greater experimentation for new solutions.

What do you think Canada needs to do to become a global fintech leader?