A new summary from the Competition Bureau of Canada reveals that FinTech leaders and financial regulators believe that Canada’s financial services sector is not reaching its full potential.
The summary, published on the Bureau’s FinTech portal, follows a workshop hosted by the Bureau in late February. The workshop invited 130 Canadian and international FinTech stakeholders, including regulators and startup founders, to discuss how Canada can improve its competitive environment and foster innovation in the FinTech sector. Panel participants included Wealthsimple CEO Mike Katchen, OSC LaunchPad CEO Pat Chaukos, and Thinking Capital CEO Jeff Mitelman.
The summary notes key reasons why Canadian FinTech leaders believe that the sector is not realizing its potential in Canada.
While the workshop’s participants agree that FinTech has the potential to scale and deliver benefits to Canadian and international consumers, it focused more on the key reasons why FinTech leaders believe that Canada’s FinTech sector is not reaching its potential.
Among the challenges FinTech firms face today was a lack of trust in new alternatives to the big banks, and consumer complacency. Participants said consumer complacency and inertia contribute to the slow FinTech uptake in Canada.
Participants also said that Canadians being less savvy and less digitally mature, and the fact that some businesses don’t feel the need to integrate digital financial practices into their companies, also contributes to slower FinTech uptake.
The Bureau summary revealed that another reason FinTech is not realizing its potential was a lack of access to consumer data, because it prevents FinTech firms from better understanding and addressing the needs of customers. Participants at the Bureau’s workshop also raised the issue of limited access to banking infrastructure to provide consumers with “frictionless services” and “improve interoperability between services.”
To tackle these challenge, the summary notes that keynote speaker Dr. Robert Atkinson, president and founder of the Information Technology and Innovation Foundation, suggested that FinTech startups need to interact with the legacy systems of incumbents, even though they may not want that interaction.
Besides consumer complacency and access to data, participants mentioned attracting talent and obtaining capital beyond the seed stage affects the ability of FinTechs to bring their products to sufficient scale. They also suggested that since regulation can play a role in winning consumer confidence for FinTechs, there is a need for more appropriate and balanced regulation.
Currently, Canada’s regulatory framework for financial services is complex and fragmented, and regulations often vary across and within jurisdictions, making it challenging for FinTech firms to monitor, identify, and address regulatory risks, as well as respond to market demands.
“We need more choice and innovation in financial services in Canada. FinTech is an important part of the solution and, frankly, we’re playing catch up.” – Andrew Graham, CEO of Borrowell
“There was also acknowledgment that the current regulatory framework is entity‑based, prescriptive, and not written to take into account changing technology. For example, FinTech innovations do not fit neatly with securities requirements designed around face‑to-face interactions,” the summary reads. “While the objectives may be sound, prescriptive regulation can be difficult to implement in a digital space. If too rigid, such regulation reduces businesses’ ability to be nimble and responsive to market demand and reduces regulators’ flexibility to adapt to the changing marketplace.”
When it comes to regulations, some participants emphasized that FinTech firms cannot grow when regulatory bodies don’t embrace change, or when incumbents are reluctant to agree to changes in current standards.
Flowing from the barriers and challenges raised by workshop participants, several ideas and opportunities to increase innovation and competition in Canada’s FinTech sector were put forward. Overall, many suggested that to set the pace and foster innovation in Canada’s financial services sector, regulators and FinTech innovators must work together to ensure that there are appropriate policies and regulations in place.
“The Competition Bureau’s focus on FinTech is important,” said Andrew Graham, CEO of Borrowell. “We need more choice and innovation in financial services in Canada. FinTech is an important part of the solution and, frankly, we’re playing catch up. We need more collaboration with established companies and a streamlined approach to regulation. The Competition Bureau’s comments are right on the mark.”
The summary’s findings will be used in Bureau’s FinTech study, which will be released in late 2017. Read the full summary here.