The Canadian FinTech Landscape
For financial services, innovations in financial technology (Fintech) are providing users more options outside the legacy institutions. Put simply, Fintech is combining financial services with technology to create new products and solutions that provide users with better user interfaces, cost and time-savings in relation to existing products and solutions. Opportunities in Fintech include areas such as payments, money transfer, accounting, wealth management, banking, lending, crypto, insurance, and financial tools for businesses and enterprises.
Canada’s strong and stable financial system, combined with its wealth of tech talent in software (and ICT more generally) renders the country to be fertile ground for Fintech adoption. The country possesses a number of venture funds focused on Fintech such as Impression Ventures, Portage, Luge Capital, FCP, as well as many local generalists and international funds taking interest. Investments into the country’s fintech companies have more than doubled in 2019, to $776M, up 104% from 2018. At the same time, the number of VC deals increased by 11% year on year.
The fintech landscape can be segmented by leveraging a use-case-based view using the following table:
A key area of innovation lies in neo-banking, which is a subcategory of the consumer and enterprise categories. Following the ongoing digitalization of all sectors, consumers are growing more accustomed to omnichannel hyper-personalized services. Neo-banks are fully digital banks that leverage no branches and no in-person meetings. Instead, neo-banks leverage their human and rental cost-savings to enable fully digital interactions with their customers, which aim to offer quick and personalized services to their customers.
Globally, neobanks have started to capture market share from legacy banks and the expected market size of $450B by 2027 and a CAGR of 48%. Given these numbers, there lie significant possibilities for early-stage neobanks to attain +1B in revenue, especially as demographics and consumer preferences continue to become more digitally inclined. Despite this, a key area of risk in Canada is the federal government’s willingness to push for a regulatory framework regarding open banking, which is essential for the future growth of neobanks. Neobanks operating within the Canadian space include KOHO, Neo, Mogo, Qonto, and NorthOne.
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