Innovate or Die: FinTech Startups Must Turn Canada into Cradle of Global Financial Innovation

Observing the Google search trends for the term “fintech” in Canada, it’s clear there is something significant happening.

OMERS, a Toronto-based VC, stated that, as of August 2015, there are 100 startups in Canada that play in the FinTech space — up 40% in total from just 6 months previously. The companies collectively have attracted over $1 billion in investment since 2010.


Google Search Trends 2015. Fintech in Canada.


Globally, FinTech companies raised $12.2 billion in 2014, up from $4 billion in 2013 — over a 200% increase.

Innovators brandishing the fintech bow have taken aim at every sector of the banking industry in Canada. Robo-advisory services, like WealthSimple, are poised to revolutionize the way we invest. Peer-to-peer payment systems, like nTrust, are chipping away at the payment processing pie. Online lenders, like us here at Grow, are changing the way that Canadians access credit.

In the US, one of the global leader in FinTech, the market share gained by many financial technology firms was spurred by the fallout from the 2008 financial crisis. With banks in turmoil, a perfect storm arose, allowing for the emergence of new entrants into the market.

Now-giants, like Lending Club, Prosper Marketplace and SoFi, filled in the cracks of a broken system, occupying the void left by the freezing of traditional credit channels post-crisis. As the banking industry slowly recovered and the traditional credit market thawed, these new players had already become entrenched. The three firms listed above are each valued in excess of $2 billion today because they filled a void in the American banking system.

The Canadian banking environment is vastly different than that of other countries, specifically the United States. Canada’s big five banks oligopolistically dominate the landscape, standing as resolutely as any other nation’s financial institutions. While chaos ensued in the wake of the 2008 crisis in many parts of the world, the long-practiced conservatism of the Canadian banks largely shielded them and the rest of the country from the fallout. As such, their recovery from the crisis was smooth and the effects were not long lasting.

By fiscal year 2010, the big five had collectively returned to pre-crisis profitability levels, with none of the institutions with the exception of CIBC ever falling below 30% of their previous highs. For their global counterparts, the financial crisis was a calamity; in Canada, it was merely a speed bump.

To illustrate the incredible power the Canadian banks yield in our country, here’s a short comparison between the largest bank in Canada (RBC) and the largest bank in the US (JPMorgan Chase):



Even though the United States is ten times as large Canada, its biggest financial institution is only 2.5 times more profitable that Canada’s.

We upstart FinTech players north of the border are not attacking an industry in turmoil; we are trying to eat the lunch of established titans that are as strong as they have ever been.

In light of this, there is no room in Canada for simple evolution in banking services from these technology-anchored challengers. The incumbent players are too ubiquitous. Only true revolution will do if we wish to succeed in making our mark.

This likely means that many of the upstart fintech firms in Canada will fail. A disproportionate number, in fact, when compared to our American brethren, because of the disproportionate strength of our financial institutions. As our country’s FinTech entrepreneurs knock at the door of the banks, we won’t be met with a vacuum on the other side like the one that prompted the rise of many FinTech players in the United States.

We must create world-first technology in order to overcome the goliaths that stand in our way. Incremental change and marginal innovation are a recipe for failure in the Canadian environment.

For the women and men who lead these startups, our challenge is daunting and the gamble is large. If nine in ten startups fail, the odds are even longer than that for us given the incumbents that we’re opposing.

The beneficiaries of these gambles will be the Canadian consumer. Those of us FinTech companies that survive building our platforms in an environment dominated by banks with strong brands, well managed balance sheets, and incredibly loyal customers are going to do so because we created technology that pulled the customer away from their banking relationship. A faster service will not win. A more convenient service will not survive. Lower fee services will not prevail.

For a Canadian FinTech company to have a fighting chance in this market, we must have all of these factors incorporated into our platforms just to get off the ground. From there we must continuously innovate to push the bar higher and solve problems the consumer has yet to realize they’re facing.

The pathway to success for the best of the FinTech providers will be littered with the shells of the companies that didn’t aim high enough or innovate fast enough. But, for those us that exceed the bar, the payoff is massive.