The next big thing: Why FinTech is becoming Canada’s most talked‑about industry
Article originally published in May 2016 edition of Private Capital Magazine
By Information Venture Partners
Move over, social media: Financial technology has become one of the fastest growing sectors in the world of start-ups.
Finance has long been a category in need of disruption. The average consumer, until very recently, saw finance as monolithic: slow-moving, bureaucratic — and the furthest thing from user friendly. That’s why trailblazers in the industry have been welcomed by their peers and customers at large. This shift in thinking has been good to Canada, and Toronto specifically — some of the world’s top-tier FinTech talent call Toronto home.
In fact, two of the world’s largest life insurers, three of the world’s top 25 banks, 123 financial securities firms, three top global pension funds, and nine of Canada’s top 10 mutual fund companies are all based in Toronto, also the home of the third largest equity exchange — the TSX — in North America. To this end, the City’s now forging relationships with and showcasing our talent to other global financial hotbeds — London, China, and Japan.
It’s not only big companies helping build Canada’s FinTech industry — start-ups and small players are equally important. An amazing Canadian case study is Shopify, the Ottawa-based e‑commerce giant who redefined how consumers buy, sell and grow commerce online. The formerly VC-backed company raised $131 million since its May 2015 IPO, indicating a total market value of $1.27 billion.
Another sample case study is Verafin, the St. John’s, Newfoundland software company that has become the leading cloud vendor in defending financial institutions from financial crimes. The company now serves more than 1,400 financial institution customers, employs 200 people and has become a strong market leader with venture capital backing from Information Venture Partners and Spectrum Equity in Boston.
A New Generation of Seedlings
Success stories like Shopify and Verafin have given rise to a new generation of seedling start-ups that are now being sought out and nurtured by Canada’s biggest banks. According to McKinsey & Co: “…banks could lose as much as 60 per cent of the profits and 40 per cent of revenue from their retail arms to financial technology or FinTech start-ups within the next decade.” Banks are taking notice and investing in incubators, new talent and new ideas.
Scotiabank got in on the ground floor with their own FinTech incubator, Digital Factory. Bank of Montreal is an investor in Ryerson University’s Digital Media Zone, a cross-disciplinary incubator. TD has invested heavily in Waterloo’s Communitech in order to gain access to a new generation of talent.
Toronto’s largest incubator collective is the MaRS FinTech Cluster. A few start-ups involved in the MaRS FinTech Cluster are Wealthsimple, SmoothPay, Wiser, Mogo, RateHub and Slice. MaRS not only provides office space and resources, they also connect these budding entrepreneurs with significant players like Wonga and BitGold. These efforts are a collaboration between 12 domestic and international FinTech brands: CIBC, Interac, PayPal, Moneris, TMX, Ugo, Manulife, Information Venture Partners, Tangerine, Ingenico, American Express and Square.
FinTech is not only growing in Canada, however. Global FinTech investment dollars have grown by 57 per cent between 2014 and 2015. In that same period, global FinTech deals have grown by 25 per cent. Venture capital continues to play a huge part in global FinTech growth, as well. VC-backed companies made up 72 per cent of overall FinTech investment dollars last year.
FinTech is also setting VC funding records, a sure sign of the global value of innovation and disruption in this category. Ant Financial, an affiliate FinTech company of Chinese giant Alibaba, just had a record-breaking Series B fundraising round of US$4.5 billion.
As today’s innovators rethink the way banks, institutions and consumers approach all things finance, it’s safe to say 2016 is just the beginning of a blooming financial tech industry, both here at home and around the world.
*Information Venture Partners is an entrepreneur friendly, early stage venture fund focused on North American enterprise and financial technology companies. They launched Canada’s first FinTech focused venture capital fund in early 2016.