FinTech startups in Canada have a reputation for taking direct aim at the traditional bank status quo, working against a bogged-down financial bureaucracy that’s resulted in an inconvenient environment for consumers.
But as these FinTech startups mature, it’s inevitable for them and Canadian financial institutions to acknowledge the mutual benefits of becoming partners instead of competitors. Grow Financial, which recently raised $10.2 million in a round led by Markus Frind, is partnering with First West Credit Union, British Columbia’s third-largest credit union with $10 billion in assets.
“We’ll probably see a critical mass of FinTech startup partnerships in early 2017.”
Kevin Sandhu, founder and CEO of Grow Financial, said that the partnership will entail Grow Financial providing its online lending technology to First West customers; by working with First West, Grow aims to provide customers with access to the on-demand lending that it’s known for.
“We want to lead these changes to ensure we’re providing our members with the services they want and need. Rather than seeing FinTechs as disruptors we see them, in many respects, as enablers,” said Jim Lamond, First West’s senior vice president of credit. “By combining new technologies with established, well-respected financial institutions, consumers can gain access to even more service options.”
While Sandhu acknowledges that the nimble nature of startups has enabled many to provide speed and convenience, these startups have reached a point where it’s difficult to grow without the brand recognition that banks already have. The same financial conservatism that helped Canada come out of the 2008 financial crisis in decent shape, earning customer trust, is the same conservatism that begets the high-interest rates and fees that customers are moving away from as they turn to FinTech startups.
First West & @poweredbygrow "share a similar culture, focused on constant innovation and unparalleled customer service" – @kevin_sandhu
— First West CU (@FirstWestCU) February 10, 2016
But with partnerships, FinTech startups will be able to offer their services to generations that may not have grown up with the Internet and have been accustomed to going to a bank for most of their life, while the larger banks reap the benefits of startups’ innovative technologies. This was the thesis behind Alterna Bank’s investment in Lendful earlier this year.
It’s difficult for Canadian FinTech companies to grow without the brand recognition that banks already have.
“What we’re trying to do is widen availability to a broader base of Canadians. Today, most Canadians don’t think about FinTech,” Sandhu said, noting that older Canadians aren’t as likely to adopt online tools. “A 70-year-old that still wants to go into their local bank or credit union and see familiar faces shouldn’t be robbed of the best financial services products because they’re not comfortable or they choose not to pull out their phone.”
As startups have been called the future of financial services leaving banks in the dust, partnering with the traditional institutions that they’ve been disrupting might raise the question of whether it will affect the innovative nature that created the startup in the first place. But Sandhu said it’s just the changing nature of FinTech.
“Entering these partnerships, we’re clear about our domain, and what our partners are responsible for is a lot of these existing customer-facing relationships,” said Sandhu. “The way we carve out what we’re doing allows us to be more focused on innovation because we now have wider breadth of customers, more volume, traction, and revenue which helps fund our innovation budget because it allows us to focus more concretely on that with fewer distractions.”
While the company is currently not making any public announcements, Sandhu said that Grow will be working on proprietary products with First West in the coming months — and that they probably aren’t the only ones. “We’ll probably see a critical mass of FinTech startup partnerships in early 2017. I think we’re at the cusp of something amazing, and I think FinTech startups are just as interested as the incumbents are.”