A recent study found that there were approximately 1,000 fintechs (financial technology businesses that provide financial services by making use of software and modern technology) across Canada offering products or services related to crowdfunding, insurance, wealth management, cryptocurrency, artificial intelligence, capital markets, lending, payments and even core banking.
Most of these were start-ups created after 2012 with less than 99 employees. Surprisingly, the estimated value of fintech start-ups in Canada is $30.5 billion.
There’s no denying that fintechs like Paypal and Ottawa-based, Shopify have revolutionized the financial services journey for customers. Yet, many fledgling start-ups struggle to navigate the complex regulatory hurdles, understand sales and acquisition funnels, and get access to the right data and integrations to be successful.
Canadian fintechs vs big banks
In Canada, six banks control over 90% of the banking industry’s assets. That makes it difficult for fintechs to cause the same level of disruption to the status quo that the US and Europe has seen.
Instead of fighting to compete with the large banks Canadian fintechs are focused on forming partnerships.
Pressure is mounting for both traditional financial service companies and fintechs
Fintechs rose to such popularity largely due to the fact that they could offer what traditional financial service firms couldn’t at the same pace, such as new technologies, new products and an enhanced customer experience. For example, Drop allows people to earn and redeem points that can be redeemed for gift cards when they make purchases with a debit or credit card that is linked to the Drop app. Drop is one of the top 50 Canadian fintech companies of 2019. Another on the list of top 50 is Borrowell. This fintech provides free credit score monitoring for consumers. It also offers various other services such as AI-powered credit coaching tools.
On the other hand, fintechs don’t have the established trust and the tried and true business models that traditional brands offer. They quickly learn that regulation is hard to achieve because it needs to be approached market by market. This makes it difficult to scale regionally and also internationally. The vast number of players is also a big challenge.
Big banks are feeling the squeeze as well as they continue to face pressure to innovate. Outdated legacy systems threaten their longevity.
Win-win collaboration opportunity
Both traditional and fintech firms stand to gain from a symbiotic, collaborative relationship. The annual What’s Going On in Banking study found that “half of banks and credit unions say fintech partnerships will be important in 2019.”
Research agrees that the rise of smart collaboration is here. These symbiotic partnerships are expected to impact 80% of existing banking revenue pools by 2020.
Both parties will need to be open-minded and focus on collaboration. It will be vital to select the best fit in order for the partnership to work.
Case in point
In the age of DIY investing and due to the demand for lower-fee investment options, a partnership between Desjardins Group and fintech Hardbacon provides the solutions customers want. This partnership gives self-directed investors access to stock and portfolio analysis tools, a six-hour online investment course and ten free trades for new clients.
Desjardins Online Brokerage’s business development manager, Louis D’Anjou said that the biggest growth for the platform in 2018 was in the number of clients aged 18-30, which is up 200’ from the year before.
This is just one example of many. It’s clear that partnerships provide the workable solutions that will enable both fintechs and traditional financial service providers to evolve.
Graduated from the University of Toronto with an Honors BA English Specialization and has completed several publishing courses at Ryerson University. She is a proofreader, editor, and content writer based in London, Ontario.