The FinTech Complacency Conundrum: Leveraging future opportunities to ensure iterative success
Article Originally Published in May 2016 edition of Private Capital Magazine
By Peter Misek
Partner, BDC Capital IT Venture Fund
Canada’s financial institutions have enjoyed an enviable track record, especially when you consider their record in the financial crisis of 2008. Even way back in 2002, we led the world in electronic banking, payments and digital funds transfer, thanks to innovations such as Interac, debit cards and the highest per capita ATM network penetration. And last year, with only 0.5 per cent of the global population, Canada’s banking industry enjoyed 5 per cent of global banking profits, ranking Canada as the country with the highest banking profits per capita in the world.
But complacency and past success may have led to the current situation in FinTech. We are behind.
In a recent report, McKinsey & Company identified Hong Kong, Singapore, London, New York and Tel Aviv as the top FinTech hubs in the world. In terms of FinTech usage we lag significantly: at five per cent market penetration, versus 15 per cent for the market leaders. Our best and brightest in FinTech have already started to approach hubs, capital and programs in Singapore, Hong Kong, London and NYC. He proudly proclaimed that it will take years for Canada to catch up, and that a Canadian FinTech startup has more access to capital, government support and private sector partnerships in his country than in Canada.
Opportunity is Knocking
However, it is neither too late nor too little. Canada boasts one of the highest smartphone and high-speed internet penetrations in the world. Our quantum computing efforts have a direct and indelible link in FinTech, as the two disciplines will actually feed off of each other. Advanced FinTech will require world-class machine learning, artificial intelligence and quantum computing—all of which we lead.
And it doesn’t stop there: according to stackoverflow.com, we rank eighth in the world in terms of high-quality developers. We graduate some of the best programmers in the world at over a dozen world-class universities and our colleges are also getting into the act. We have significant talent.
While there have been considerable studies on Canada’s growing productivity gap and our innovation dilemma, what is clear is that we need a systemic solution to the growing importance of FinTech, or we risk becoming a global laggard. Based on empirical evidence from leading centers, we need a multi-pronged approach that includes a FinTech lobby, a network for collaboration and information sharing, comprehensive public and private sector involvement and, importantly, a grassroots effort to incorporate entrepreneurship and technology into our education systems as early as possible. Our fantastic system of CTAs, accelerators, hubs and associations need top-grading and continued ramping. Government at all levels and private industry must become buyers of technology at higher rates and, especially, Canada has to instill a culture of iterative success.
Much has been written about the need to accept failure in technology start-ups. But in FinTech, failure has different and often catastrophic personal and business implications for customers of FinTech products and services. Trust is the most important commodity in financial services. As such we need to allow these FinTechs to iterate to success. That means not “failing fast,” or other tech startup euphemisms, but rather a continuous approach to finding success, modifying initial products and services incrementally until market fit is understood and reliability is assured.
We need zones where technology can be tried without fear. The regulatory environment has to become more adaptive, responsive and in general more customer-friendly, allowing initial alpha and beta trials with lower barriers by using regulatory offerings as a service from companies such as Trulioo, Stripe and AWS as a baseline service, thus lowering the cost of entry.
We have to modernize our own systems immediately as a country, otherwise we risk becoming a haven for fraudsters, organized crime and the funding of terrorists. The financial fraud issue in Canada is so much more than being diligent about updating and securing passwords on your online accounts: In many provinces, if someone copies your driver’s license you CANNOT cancel it or get a new number. The current systems underlying the driver’s license database do not allow for alterations or removal. The only instance that would allow it is a name change. And the same is unfortunately true with many of our other government accounts and information. Meanwhile, the law says that you continue to be responsible for anything that happens on those accounts. This means that when you lose your driver’s license after someone has been using it to impersonate you, you will receive your same number back again and the thieves can continue impersonating. We can do better than this.
To be world class, we need to set aside Canadian prejudices and look at our opportunity through the lens of world-class programmers, working with world-class financial institutions, leveraging improving enterprises and backed by world-class government. Our time is now.
*Peter Misek is Partner, BDC Capital IT Venture Fund. The views expressed are those of the author and do not necessarily reflect those of BDC and/or its affiliates.