CVCA Q3 2017 Quarterly Exclusive: Banking On Canadian FinTech
This article is part of a new series, CVCA Quarterly Exclusive, written and published by the Canadian Venture Capital and Private Equity Association. This series provides an analysis of the CVCA’s most recently published VC & PE Canadian Market Overview through expert commentary and perspectives.
Canada is sitting at the table in the global financial technology sector.
According to a report on global fintech investment published from KPMG International, Canadian fintech investment remained relatively steady in Q3. Direct fintech investment activity in Canada observed US $312M during the quarter.
Notably, among the fintech deals that have taken place YTD in 2017, is the CAD $57M Borrowell round from White Star Capital, Portag3 Ventures, Equitable Bank with participation from FirstOntario Credit Union and Concentra. The deal placed in the top ten YTD VC deals in Q3 2017 by the CVCA.
Founded in 2014 and officially rolled out in 2015, Toronto-based Borrowell is a Canadian marketplace lending platform offering consumer loans and personalized financial product recommendations.
Borrowell calls it a simple, secure and convenient way to connect borrowers and lenders. The company is “harnessing the powers of community and technology to offer better rates, better service and a better customer experience.”
That vision packs a punch and it’s backed by Borrowell’s investors. As Jean-Francois Marcoux, Managing Partner, White Star Capital explains, the vision and what the company’s been able to deliver on that vision was a characteristic that attracted White Star Capital to the investment.
“About a year before we invested in Borrowell, we met Andrew Graham (Co-founder & CEO, Borrowell) at a fintech event in Toronto. White Star had been following the business for about a year before we invested, and we opted to obviously build a relationship. We dug deep into the company’s metrics and were so impressed that we became serious about backing them, which we then validated by a thorough examination of the company’s planned future growth. We were proud to be co-leading this round with a very strong syndicate of investors.
Borrowell is making significant investments in data science and AI. The goal is to better predict and build financial tools and products to help consumers with financial decisions. Such vision was fully-aligned with the investment thesis of White Star.
“The ability for Borrowell to convince traditional lenders to partner with them was also a strong momentum signal and led the company to secure 70 million in credit facility commitments to fund one-click loans to its prime consumers,” explained Marcoux.
FINTECH IS UNDER SERVED
Marcoux says that while the fintech sector is getting a lot of publicity in recent years, the market is still quite under served.
“The basis of our rationale to invest in Borrowell is based on the fact that fintech as a whole and online lending in Canada is under penetrated at the moment. When we look at the overall credit market, the consumer credit market in Canada is as big as the market in France and Germany. We were also of course impressed by the combination, complementarity and hustle of the co-founders, Andrew Graham and Eva Wong.”
In terms of sector performance, Marcoux says he doesn’t anticipate fintech players necessarily defeating traditional banks. He instead sees the industry going forward collaboratively.
“We see kind of a win-win relationship. The first thing that we believe in is that the traditional players and fintech emerging players will cooperate; so, its not about necessarily crushing the banks.”
White Star has their eye on a variety of financial technology offerings, including innovative solutions in the insurance industry with their investment in TheGuarantors, in intelligent credit scoring with Aire or in loyalty management with Drop.
“One sector that we are observing very carefully is the insurance tech market. When it comes to insurance, whether it’s a group/collective insurance or commercial and general liability insurance products; there’s a lot of disruption going on,” says Marcoux. “We think that the traditional players will be challenged at first because of a very weak offering from the consumer or end-user stand point. Technology or customer service right now is quite painful when it comes to submitting claims, servicing claims or simply shopping for insurance products. So, companies offering different end-customer experiences and disrupting existing value chains; that’s basically what we’re interested in.”
THE FUTURE OF CANADIAN FINTECH
Canada will continue its position as a world leader in fintech, but it must seize on current opportunities, says Marcoux.
“Canada has tremendous reputation when it comes to its banking system. In terms of fintech, the downside for Canada, which is also an upside, is most of the fintech penetration rates are much lower than several countries. So that’s an opportunity in the sense that Canada will certainly catch up and improve. The downside is that the growth so far is a bit slower and it’s taken more time for the growth to come and for that market to develop in Canada. But the timing is right to invest as the adoption is accelerating,
Overall, White Star is thrilled with its investment in Borrowell and looks forward to continue investing in exciting businesses that will drive the future of Canadian Fintech.”
To read more about Canadian venture capital activity YTD in 2017, read the full CVCA Q3 2017 VC & PE Canadian Market Overview here.