Canada Doubles Down on Fintech

Navigator Edition: March 2017
By: Peter Lischick

Investor interest in Canada’s fintech industry has gained notable momentum. More than C$1 billion1 of venture capital was invested in Canadian fintech firms from 2010 through August 2015 while cumulative venture capital investment in fintech globally totaled approximately C$27 billion2 from 2011 through August 2015. In parallel, major financial institutions in Canada aren’t standing by idly. While some still compete directly with fintech startups, others are embracing innovation either by partnering with startups or by developing their own proprietary solutions.

First Annapolis recently examined the Canadian fintech landscape and observed five major trends.

  1. The simplification of e-/m- commerce: Canada’s retail e-commerce revenue grew by approximately 17% from 2013 to 2015 and is expected to continue growing at over a 13% CAGR through 20193. Shopify and Slyce are two examples of fintech firms that have helped to facilitate this growth. Shopify makes the process of launching an e-/m-commerce website easier by accelerating and simplifying the implementation of fully-functioning e-commerce capabilities. Slyce streamlines consumers’ mobile shopping and payment experiences by immediately identifying clothing, toys, or other goods captured in a photo and providing consumers with a link to purchase those goods through their phone.
  2. The emergence of new alternative lenders: As in the U.S., a flurry of new alternative lenders have emerged in Canada, which has led to financing innovations, particularly in the form of cash advances, peer-to-peer lending, personal loans, business loans, and sales financing arrangements. These new firms cater to a variety of consumer segments such as sub-prime / near-prime borrowers / lenders as well as tech-savvy consumers who prefer not to visit brick and mortar bank branches.
  3. The streamlining of financial management systems: Canadian fintech startups have also sought to simplify the financial management systems of consumers and SMBs. Wave and Bench offer solutions to reduce SMB’s burden of building and managing accounting and payment systems. Whereas, Nest Wealth, WealthBar, and Wealthsimple provide consumers cost-effective investment management using robo-investing technology, similar to Betterment in the U.S.
  4. The spread of mPOS: As of 2015, Canada ranked among the top five markets for mPOS transaction volume4. Canadian fintech firms such as Lightspeed POS and Dream Payments, as well as several U.S. firms (Global Payments, Square, TouchBistro, Intuit, etc.) have been driving mPOS adoption in Canada by supplying SMBs with the hardware and software needed to process and accept payments from a smartphone or tablet.
  5. The growth of person-to-person (“P2P”) money transfers: Canadian P2P payments have been one of the fastest growing Canadian payment methods with expectations for transaction value to surpass C$3.5 billion (US$2.6) in 2016 and for growth to continue at 24% annually through 20205. A surge in the number of money transfer options, the enablement of free unlimited P2P payments at certain banks (RBC and CIBC) via Interac e-Transfers, the expansion of social P2P methods via Facebook Messenger and Tilt, and the launch of P2P functionality in the UGO wallet have accelerated P2P growth in Canada.

Figure 1: Recent Canadian Fintech Trends

1 Skrill was acquired by Optimal Payments, a U.K. firm based in November 2015.
2 Zenabanx was founded in Toronto and still has an office there but moved its headquarters to the U.S. and was acquired by SoFi on February 1, 2017.
Source: First Annapolis Consulting primary research.

In response to the proliferation of fintech startups, several major Canadian banks have opted to embrace the fintech movement by either allying with technology / fintech firms or developing their own technology. In 2013, Payfirma (a provider of the hardware and software needed to accept payments online, in store, at the office, or in the field) partnered with CIBC to offer its payment processing solutions to CIBC’s business clients. Through RBC’s partnership with Facebook, RBC became the first financial institution in North America to offer P2P payments through Facebook Messenger. Most recently, CIBC and Scotiabank deepened their individual relationships with online small business lender, Thinking Capital, by more than doubling Thinking Capital’s credit facility to C$125 million. In a more innovative strategy, Scotiabank announced a partnership in December of 2016 with U.S. fintech-focused V.C. firm, QED Investors, to help Scotiabank potentially identify fintech investments in Latin America. Figure 2 provides a larger sampling of major Canadian bank partnerships with fintech and technology firms.

Figure 2: A Sample of Canadian Bank Technology Partnerships

Source: First Annapolis Consulting primary research.

Investments by Canadian banks in proprietary technology have also helped to transform the financial services industry in Canada. Over the last several years, internal investments have allowed for almost every major Canadian bank to launch a proprietary mobile wallet or embed mobile wallet technology in their mobile banking applications. Tangerine has developed a tool called Small Sacrifices which identifies the amount of savings a consumer could achieve by avoiding frivolous small purchases. RBC received a patent in October for its smart order router, Thor, which improves the ability of investors to access liquidity and receive the best prices and execution.

Canadian banks and fintech startups aren’t just succeeding within their borders either; many Canadian fintech players (Bench, Lightspeed, Shopify, Skrill, Wave, and Zenabanx to name a few) have expanded to the U.S. and Europe, in some cases via strategic and private equity investments. Moreover, Canadian banks have begun acquiring and sourcing technology from the U.S. via the creation of innovation labs and partnerships with U.S. fintech firms. As competition on the basis of technology intensifies among financial institutions, it would behoove U.S. banks, fintechs and investors to stay abreast of the Canadian fintech sector.

1 OMERS Ventures news article “A Snapshot of Next-Gen Financial Technologies.”
2 CBI Insights & KPMG’s quarterly fintech report “The Pulse of FinTech, 2015 in Review” & First Annapolis primary research.
3 eMarketer article “In Canada, Retail Ecommerce Sales to Rise by Double Digits Through 2019.”
4 Mastercard Insights’ Blog “Payment Perspectives Blog.”
5 Statista query “P2P Money Transfers: Canada.”

For more information, please contact Peter Lischick, Consultant,, specializing in Credit Card Issuing.

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