Last year, we released the first edition of Ferst Capital Partners’ FinTech Map, plotting all FinTechs serving Canadians by vertical and growth stage. We received a lot of great feedback and were proud to see our work referenced by both investors and regulators.
Today, we are releasing an updated version, along with some other telling charts on the overall state of FinTech in Canada. There is a lot of data packed into these charts (426 companies were analyzed), so we encourage you to grab a cup of coffee and take your time as you go through them. We have included several of our own takeaways below each diagram but, with plenty of ways to slice the data, you will undoubtedly develop many of your own.
As a result of this exercise, we found two recurring themes worth highlighting. The first one is obvious to all of us tracking the space, while the second may be more subtle.
If we want home-grown companies to lead the next wave of financial services in Canada, both regulators and investors will need to play their part.
The more obvious theme is that the cryptocurrency and blockchain vertical has seen the most action in Canadian FinTech over the last 12 months. To put some data around this, we have seen 21 net new companies enter the space over the last year (net new refers to new companies minus dissolved ones). This is more than double the activity of the next two most active verticals, lending and insurance, which both saw nine net new startups enter the space.
We have also tracked seven net new cryptocurrency and blockchain startups entering the expansion stage, again leading the pack amongst all verticals. This indicates that companies are not only entering this vertical at a rapid pace, but they have been relatively successful in gaining traction. While several forces are at play here, the lack of regulation plays an important role: it tends to take these companies less time to get to market than other FinTechs given there are fewer regulatory hurdles to overcome. Likewise, it also seems to take these companies far less time to achieve international expansion than other FinTechs given the lack of regulatory hurdles away from home.
The second, less obvious theme is how B2B (business-to-business) startups have achieved a significantly higher success rate than B2C (business-to-consumer) startups. Even though B2B startups make up 54 percent of all Canadian FinTechs, they add up to 75 percent of all startups we tracked in the expansion stage. On the other hand, B2C companies make up 35 percent of all FinTechs but only 18 percent of all startups in the expansion stage. These are significant differences.
We believe with the right funding and the right network, B2C FinTechs can be very successful in this country as they have elsewhere.
While all FinTechs face common challenges, including the difficulty of forming partnerships with incumbents and heavy customer acquisition costs, these challenges appear to be exacerbated when going direct-to-consumer. As a result, several of the FinTech-focused funds in this country tend to favor B2B companies, which now makes funding a bigger challenge for B2C companies.
Investors will look at these numbers as validation for their B2B-focused strategies, while B2C entrepreneurs will argue that they need more capital support to be successful. Is it the chicken or the egg?
Despite these results, at Ferst Capital we have maintained our focus on B2C FinTech. We believe with the right funding and the right network, B2C FinTechs can be very successful in this country as they have elsewhere. Moreso, our mission is to help improve financial services for Canadians and we believe that, when looking at FinTech on a global scale, the B2C companies like Revolut, Credit Karma, Lending Club, Wealthsimple, and Mylo are the ones that have made the most impact in advancing how consumers interact with their money.
If we want home-grown companies to lead the next wave of financial services in Canada, both regulators and investors will need to play their part. Regulators will need to create a more inviting operating environment for these companies; for example, vis-a-vis open banking and FinTech charters. Investors will need to provide more active support and understand that, despite the added risk, based on the massive successes elsewhere in the world, the return will be worth it.
You can find the full infographic below. We look forward to hearing your thoughts!
Note: We work hard to be as accurate as possible and included 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 edition of the infographic. Better data leads to better insights.