FinTechs serving Canadians: which verticals are thriving?

fintech

When discussing the topic of FinTech, we often hear generalized statements like “Canadian FinTech is growing” or questions like “how can the Canadian FinTech ecosystem rank within the top five in the world?”

But FinTech is broad. It includes everything from algorithmic trading software to apps that help split the restaurant bill amongst friends. For those of us that follow the space, we intuitively know that innovation in online lending has been on a very different trajectory than cryptocurrency, but how different is hard to quantify. As a result, we tend to make generalized statements about FinTech which seldom lead to actionable insights. To push the conversation in the right direction, we need to be more specific. We need data.

The insurance vertical is the third most crowded vertical in Canada.
 

At Ferst Capital Partners, we are constantly studying the Canadian FinTech landscape and we took it upon ourselves to dig deeper. More specifically, we tracked the growth of FinTechs offering their services in Canada to assess where the Canadian market offers opportunity for FinTechs or fosters innovation, and where it faces challenges.

Our research, culminated in the heat map below, where we plotted the Canadian FinTech universe by each company’s operating stage: pre-launch, early-stage, expansion or maturity.

Although it would have been an easier exercise to plot these companies by capital raised instead of operating stage, we do not think that financing is a good indicator of success for FinTechs, particularly in Canada. We have seen ample startups raise lots of capital at very early stages (e.g. Wealthsimple, Grow, Blockstream) and others that have flourished while bootstrapped (e.g. Canada Drives, Ratehub). We thus find it far more interesting to track whether certain verticals are experiencing more consumer traction, as opposed to investor traction.

I am sure you will draw your own insights from the infographic (please share them with us!). In the meantime, here are a few of our own:

  • The two verticals that have made the most progress in Canada are payments and lending, each with over one third of its startups operating in the expansion stage. It is not surprising that these two verticals are also the most crowded; each has 45+ startups looking to disrupt the space.
  • While wealth management and personal finance are two of the most popular verticals for entrepreneurs, very few startups have made it to the expansion stage (8% and 17%, respectively), making both of these verticals amongst the most challenging to gain traction.
  • On the other hand, compliance and infrastructure & enterprise banking are two verticals that have not attracted many entrepreneurs. Yet, when Canadian ingenuity is thrown against these sectors, there seems to be a relatively strong success rate; in both verticals, almost a third of the startups operate in the expansion stage.
  • Crowdfunding has some major obstacles to overcome. There have been no Canadian-based crowdfunding companies that have been able to hit the expansion stage.
  • Cryptocurrency and blockchain applications tend to spend relatively less time in the pre-launch stage. Alternatively, these applications have been hard-pressed to get out of the early stage, with only one company in expansion.
  • The corporate finance vertical has been one of the least popular verticals for entrepreneurs, even though Wave Accounting and Freshbooks are two among the great success stories of Canadian FinTech.
  • While lending is a crowded vertical and has made good progress relative to the other verticals, we notice there is a certain sub-segment that has received little traction: mortgages. The mortgage market is massive in Canada, yet has seen little innovation.
  • The insurance vertical is the third most crowded vertical in Canada based on the number of startups in the space. Yet, with around one-third of its startups in pre-launch, entrepreneurs still see ample opportunity for innovation.
  • As we continue to update this map on a regular basis, we hope to find even more interesting metrics, such as identifying which stage each vertical experiences the highest abandonment rate. In the interim, these results should have implications for entrepreneurs looking to build a FinTech startup in Canada, investors looking for underserved verticals and regulators shaping policy to encourage innovation in Canadian financial services.

    See the map below:

    Canadian FinTech Map
    Click to enlarge.
    Canadian FinTech Map
    Click to enlarge.
    Canadian FinTech Map
    Click to enlarge.


    Note: We worked hard to be as accurate as possible and include in the analysis all FinTechs offering their services in Canada. However, as the space grows and evolves, it is possible we classified your company incorrectly, or we may have missed your company altogether. Either way, please contact jshaanan@ferstcapital.com and, if all checks out, we will be sure to reflect the changes in the next version of the infographic. Better data leads to better insights.

    Special thanks to Sam Beushausen and the rest of the FCP Investment Team for putting this together.

    Photo via PwC

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    Jonathan Shaanan

    Jonathan Shaanan is CFO and principal at Ferst Capital Partners, one of Canada’s leading FinTech-focused VCs.

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