• John Armstrong, Author |
4 min read

​Last year, we saw a surge of activity in the financial technology (fintech) sector, both globally and in Canada. The year before that, Canada saw fintech investments of over US$6B, double 2019's total, according to KPMG's H2'2021 Pulse of Fintech report. A significant portion of this funding came from the U.S.

Here's what we infer from these numbers.

First, fintech business models are more compelling than ever. In areas such as insurance, lending, payments, investments and core banking, new entrants are making strong inroads as industry disruptors. Fintechs now represent about US$1 trillion of the $10 trillion total valuation of the global banking and payments industry. But not all fintechs are disruptors; many find success as enablers, helping banks and other financial institutions provide better services and back-office processing in areas such as credit adjudication and channel management, often deploying very sophisticated artificial intelligence (AI) technology.

Second, Canada's role in the global fintech ecosystem is growing. We can proudly count a number of our fintechs as truly global players. This speaks to great progress over the last 20 years in making Canada an attractive place for the fintech sector to thrive. Our excellent post-secondary institutions, which excel in key areas such as AI and other technologies, are an integral part of this.

However, while we enjoy our relatively newfound success, Canadian governments, regulators and investors must take action to ensure continued growth in this sector.

For inspiration, we can look at the United Kingdom, which has the second largest fintech sector globally and, like Canada, has also experienced very strong growth and investment.

In 2020, the UK government commissioned a review of its fintech sector, seeking recommendations on how to enhance and grow it. Led by fintech entrepreneur Ron Kalifa, the report made recommendations in five key areas. These categories are useful for governments and other stakeholders in Canada to identify opportunities here at home.

Policy and Regulation: While the UK has been aggressive over the last few years in its regulatory approach (the banking regulator created a regulatory sandbox, for example), Canada's approach to fintech regulation needs to catch up to its global peers. While the Ontario Securities Commission did create a sandbox for fintechs and others wishing to tap the public markets, the Office of the Superintendent of Financial Institutions (OSFI), our federal banking regulator, could create its own sandbox where fintech players could be afforded forbearance around some of the key banking regulatory requirements— including Know Your Client rules, capital, and other compliance requirements—while road testing new business models and approaches.

Skills: One of the UK report's recommendations was to create a new visa "fast path," as well as more work placement in fintech firms, as a way to boost retraining and upskilling. This is an urgent need in Canada, as well. While our universities and colleges are second to none in terms of the "hot skills" for this sector, we need to ensure that our workforce is dynamic and agile. Both federal and provincial governments could work with the fintech sector to help with initiatives such as funding work terms at fintech companies. On immigration, meanwhile, it is worth assessing whether we need a fast path visa to support the sector. The recent expansion of the skilled refugee pilot program, though small, is a welcome step in the right direction.

Investment: Over the last few years, we have witnessed the birth of numerous significant private venture funds. But are they enough to boost investment in the Canadian fintech space? It might be worth considering a Canadian version of an idea proposed in the UK fintech report, which is to unlock institutional capital to create a private sector-led GBP £1 billion Fintech Growth Fund to help drive scale and create a world-leading ecosystem. Though the idea has not yet come to fruition in the UK, the idea could have merit in Canada.

International: Another key recommendation from the UK report was the creation of a Centre for Finance, Innovation and Technology. This centre would be funded by the UK government but run by the private sector with a mandate to research and promote policies that support UK fintechs globally. This idea, too, is worth considering for Canada, as the benefits would extend into all five areas of the recommendations.

National Collaboration: For the sector to continue to thrive in Canada, we need to ensure that our key geographic fintech clusters are stronger and more collaborative. Clusters include not only the fintech companies themselves, but educational institutions that provide graduates with the requisite skills, banks that are often investors and customers of the "enabler" fintechs, venture funds and other market participants. The establishment of a Centre for Finance, Innovation and Technology could play a valuable role in ensuring this critical connectivity.

Ultimately, as we seek ways to drive prosperity and growth in the Canadian economy, supporting our fintech sector should be top of mind for stakeholders. There are many solutions, so let's start talking about them. If we don't, Canada risks falling behind.

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