COVID-19 has impacted many aspects of our lifestyles and accelerated changes in the way we interact, work, shop, and much more. These changes have also affected the way we use technologies, including fintech. In the first quarter of 2020, the volume of financial technology transactions increased by 13% worldwide, and 21% in North America. In Canada, the adoption of financial technology advanced by 3 to 5 years due to the pandemic, surpassing the U.S. adoption rate.
The World Bank defines fintech as a financial institute “encompassing advances in technology and changes in business models that have the potential to transform the provision of financial services through the development of innovative instruments, digital channels, and systems.” The fintech industry is joined by and disruptively advanced by entities from outside of traditional financial institutions.
Due to these changes and the increased demand for fintech, e-commerce and technology companies around the world have accelerated product development. As they look for new markets and growth opportunities, Canada emerges as the best place to invest in fintech.
Bank safety is appreciated more than ever due to the COVID-19 pandemic, and Canada’s reputation for a safe and sound financial system is recognized globally. Canada has the most stable macroeconomy and the 6th most sound financial system in the world. Five Canadian banks are among 30 of the World’s Safest Banks, while no other North American institution made the list.
Therefore, it is critical to stimulate innovation and ensure a secure transaction environment in the fintech ecosystem—areas in which Canada excels.
Canadian cities emerging as global fintech hubs
Taking a closer look, Canadian cities are becoming innovation hubs which help grow and nourish fintech investments and startups. In the Global FinTech Ranking, Toronto ranks 12th among the world’s top 230 fintech cities. Bolstered by its position as the second largest financial centre in North America, fintech investment in Toronto grew at the highest rate in the world from 2010 to 2018. However, innovation and technology thrive across Canada, and four other Canadian cities are among the top 100 of the Global Fintech Ranking as well: Vancouver (36th), Montreal (48th), Calgary (84th) and Ottawa (90th).
These cities’ fintech ecosystems are built on a foundation of innovation, technological expertise and skilled talent.
Current state of fintech in Canada
Canada is home to more than 890 fintech companies, which comprises both foreign and domestic entities. The fintech ecosystem supports 83 startups, which play a key role in the innovation and growth of the industry. The province of Ontario has the highest number of fintech companies (519), followed by British Columbia (173), Quebec (106), and Alberta (77).
The year 2019 saw a surge of foreign investments into the Canadian fintech industry. USD $2.14 billion was invested in venture capital deals and another USD $27.1 billion through M&A deals, which continued to see a growth of 25% through 20201. Acquisitions of companies such as Solium Capital and Wave Capital by US firms highlight the growth and maturation of the Canadian fintech industry as an innovative fintech host country. Large foreign investors have shown increased interest in the Canadian fintech ecosystem. These include:
- Brex, a US-based B2B financial products firm announced the opening of its first international office in Vancouver, BC in March 2020 focusing on software engineering and customer support.
- Lusis Payments, a France-based provider of software and services to the retail payments industry, announced in April 2020 it would open a new support centre in Toronto, ON.
- HSBC Bank, a UK-based multinational banking and financial services organization, announced in May 2019 the opening of a global data and innovation lab in Toronto to help the bank develop new products and services.
- US-based MasterCard announced a $510 million investment in a Global Intelligence and Cyber Centre in Vancouver in January 2020.
- Matera, a Brazil-based provider of digital transformation services, announced in March 2019 the opening of a new development centre in Waterloo, ON.
- TradingScreen, a US-based provider of electronic trading and investment software solutions, opened a new development centre in Montreal, QC in 2019.
Investments by companies such as these demonstrate the strength of Canada’s fintech industry, and are helping deepen the sector’s product offerings, skills, technology, services and operational processes at a globally competitive level.
Opportunities for companies in Canada’s fintech industry
Advantages for foreign investors in Canada’s fintech industry include access to a diverse and skilled workforce, strong technology driven by innovation and the simplicity of the regulatory environment.
A wealth of tech talent
Creating an ideal fintech ecosystem requires strong support from the technology sector and a solid financial system—both of which Canada possesses. Renowned Canadian universities play an essential role in developing high quality talent. The technology sector in Canada is characterized by a knowledge-intensive workforce; the software and computer services industry employs more than 62% of the university educated workers, the highest concentration in comparison to any other sector within the technology industry.
Moreover, four of Canada’s major financial technology centers—Toronto, Vancouver, Montreal and Ottawa—rank in the top 20 tech talent markets of North America. While Canada’s talent is highly skilled, it is also more affordable than many other global tech hubs, in terms of tech talent wages, as well as rental and operating costs.
Fintech incentives and programs
The fintech ecosystem in Canada is further supported by initiatives such as the Innovation Hub centre in Toronto—a partnership between the Bank of Canada and the Bank of International Settlements (BIS)— which promotes fintech innovation within the central banking community.
Global investors within the fintech space can also benefit from the Scientific Research & Experimental Development (SR&ED) tax credit, a $3.5 billion incentive that supports innovative companies investing in research and development. In addition, the Industrial Research Assistance Program (IRAP) provides grants to eligible tech companies that covers up to 75% of project costs, with disbursements varying between $50,000 and $500,000 per company.
A supportive ecosystem
Canada’s fintech industry is characterized by partnerships and collaboration. More than 62% of Canadian financial institutions are actively involved in partnerships with fintech companies, which is 15 percentage points higher than the worldwide average of 47%. In contrast, the US is 9 percentage points and the UK is 18 percentage points lower than Canada’s share.
These institutions are working with Canada’s fintech experts to develop their own tech capabilities and are further attracting talent to Canada through initiatives like RBC’s Borealis AI lab, and TD’s Fusion Centre focused on cybersecurity. Many of these financial institutions have established prominent partnerships with incubators and accelerators, including TD Labs and Communitech; CIBC Live Labs and the MaRS Discovery District; BMO and the DMZ at Ryerson University; RBC and Highline Beta; and Scotiabank and the Creative Destruction Lab. Fintech ecosystems across Canada are supported by organizations such as Toronto Finance International and Finance Montréal, which bring together government and the private sector to advance the financial services sector.
Canadian fintech companies offer a full spectrum of financial services. From digital payment provision platforms to invest-tech, alternate lending and insure-tech, Canada’s fintech industry is diverse and constantly innovating. The industry is rapidly adapting emerging technologies such as cryptocurrency and blockchain, with these services representing 7% of the fintech industry2.
The future of fintech in Canada
Although the COVID-19 pandemic created challenges for all industries and for foreign direct investment globally, Canada’s fintech industry represents an emerging opportunity. As the world shifts to online and virtual transactions, interest in the industry is dramatically accelerating due to the increase in the use of digital technologies. This trend is expected to continue through and beyond 2021, and Canada is well-positioned to be a leader in fintech thanks to excellent talent, robust industry support, increasing fintech adoption rates and a track record of innovation.
If you’re interested in expanding your fintech company to Canada, contact us now.