Canada shouldn’t shy away from fintech it’s our opportunity to shine – The Globe and Mail

John Armstrong is national industry leader, financial services, KPMG in Canada.

Every day, another article in the North American business press cites the threat that banks and other financial institutions (FIs) face from fintech firms, which will disintermediate them from their customers, provide better products and services for a fraction of the cost and steal away market share and significant revenues from those hapless old economy firms.

While the David-versus-Goliath narrative makes for a good story, it is not supported by the emerging trends in the Canadian fintech sector and the rest of the world. The strength of banks and insurers in Canada, and their history of innovation, are what make Canada, and especially Ontario, an ideal environment to foster the growth of the industry and make this country a beacon to the financial-services industry.

Firstly, investors are increasingly looking beyond the hype to understand if firms have a differentiated business model and the ability to deliver. In 2016, some missteps in the industry were a wake-up call for investors. Powa, a British-based payments firm, filed for protection after it burned through $250-million of investors money and its putative valuation fell from $2.5-billion to zero.

The funding trend is now moving toward enablers versus disruptors. Disruptors are firms with a business model based on disintermediating financial institutions or competing with them, a group that includes Lending Club, robo-advisers Betterment in the United States and Wealthsimple in Canada. The enablers are fintechs focused on partnering with current financial institutions to deliver an improved client experience or provide banks with more efficient technology, streamlined processes and better security. More than 42 per cent of new money is going to enablers.

Banks and other FIs have large incumbency advantages, and fintech firms recognize that convincing the large base of satisfied bank customers to switch is difficult for a monoline fintech. Banks have an unparalleled ability to cross-sell existing customers using sophisticated analytics that target key buyer values.

Finally, Canadian banks are not standing still in mobile and digital. In Canada, major banks undertake large investments to make their organizations agile and faster to market. Internally, most banks have changed how they build technology, using new approaches and new platforms. Canadian banks are also aggressively partnering with fintech firms and Ontario incubators.

While we have made great progress and have strong fintech players in Canada, there is the potential to make fintech even more important in the financial-services cluster. To do this, there are several actions to take:

As the Canadian economy changes from resource-based to more services-oriented, the financial services cluster is critical. We must continue to foster innovation in the industry, and a robust fintech ecosystem is a key component. Canada is well positioned to play a global leadership role in the fintech sector if we act decisively.

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Canada shouldn't shy away from fintech it's our opportunity to shine - The Globe and Mail