The State of Canada’s Fintech Ecosystem – Irish Tech News – Irish Tech News
The global pandemic brought about numerous challenges for businesses, but it couldn’t dim the bright future of Canadian fintechs, as they had an exciting year. The ecosystem continued to evolve, bringing about new partnerships and ensuring international recognition for fintechs. Even though there were long-term trends that COVID-19 had shaped, most Canadian financial institutions and fintechs had stepped up their game.
They had pitched in different ideas and changed their mediums from coast-to-coast, even though there had been a lot of uncertainty in the market. If you look towards the future, you will find that there are many reasons to remain optimistic about the tech talent in the country and the prospects for the growing fintech hubs in Canada.
It was only in the previous year that the fintech ecosystem revealed numerous signs indicating a shift in the broader industry, which was shaping the future of fintech in Canada. This was thought to be largely due to the pandemic, but towards the end of Q3 in 2020, the deal activity for global fintechs had decreased by nearly 24% in the previous 12-month period. Even though the preliminary Q4 figures globally had indicated that there would be a bounce-back, both dollars and deals were still being tracked to decline from the previous year.
Notably, the global seed-stage deals had been projected to reduce to nearly 37% of the complete activity in 2020, with deals in the later stages gaining their share. Our analysis found that the early-stage deals had remained consistent in the year 2020, but the average deal size for early-stage deals had dropped from the start of the pandemic. It has been a challenge that has been lamented over the last year by venture executives.
CEO Michael Cardamone stated that his team “did not know the funding gap that had developed in Toronto in the pre-seed stage. On the other hand, Mark Skapinker, the managing partner of Brightspark Ventures, described the situation in Canada for 2020 as a “seed crisis that was affecting the entire nation.” Looking at the complete picture, if there is one area where the global trends are diverging for Canada, it is the ‘mega-rounds’ for the fintech industry.
Even though 2020 had represented a landmark year for major deals taking place on a global level, there were high-tech solutions that had gained the attention of investors during the pandemic. However, the share for Canada had declined by the end of Q3 in 2020. Apart from the investment side of things, the slow rate of Canadian fintechs being founded shows that the fintech ecosystem in Canada is evolving on a broader level. There are now more than 700 fintechs in the country, and 18 originated in 2020. It’s the second year in a row where the number of fintechs founded in the country has been on a downward spiral and shows a drastic drop from the 43 fintechs founded in 2019.
The declining numbers have shown an immense correlation to the trends and signal financing challenges in the early stage, which have been discussed above. Entrepreneurs also had to pause many projects temporarily due to the economic recession that came about as a result of COVID-19. Our research found that long-term possibilities would include an acceleration in the number of offers, resulting in a crowded market or the increase of large-scale later-stage fintechs.
Examples include fintechs like Wave or Lightspeed, who have both achieved high-profile exits in the past year. They also expanded the depth and breadth of their services from various boundaries into 2020.
However, there is still an opportunity for Canada to grow, especially when talking about adopting fintechs and the rate of financing. As many fintech leaders in Canada have emerged, early acquirers and public shareholders are now looking at their past growth to achieve more profitability. During the period, many new opportunities are starting to emerge for large-scale, incumbent institutions and established fintechs.
The best part about all this is that the experienced and talented incubated businesses within the industry may kick-start a new era of Canadian fintechs that are more innovative. In addition, two trends have been observed in recent times which were key to driving the evolution of the ecosystem for Canadian fintechs:
In the past few years, there has been a massive increase in the incumbent-fintech partnerships that have taken place. These are designed to bolster the different services and products in the industry. The larger institutions have engaged innovative partners in numerous ways. Most of them, like the CIBC, National Australia Bank, and Bank Leumi, have launched their channels from where they are accelerating the rate from where they are partnering and collaborating.
For instance, the Global Alliance Fintech Link has been designed to “streamline the process for partnerships by fintechs and provide clear visibility to the different customer problems that banks face. US-based investors and companies are already placing bets on the trend accelerating.
To ensure that we present a fair reflection in our report, we have scanned the ecosystem for Canadian fintechs and identified more than 700 fintechs all over the country. Nearly 60% of these fintechs are found in the province of Ontario, most occupying the Kitchener-Waterloo corridor and Toronto. When you factor in the numerous new and exciting technology developments across Canada, you realize the immense potential of fintechs in Canada.
British Columbia has more than 120 fintech, and Vancouver has become a well-rounded technology hub. There have been other success stories in the past few years, including names such as Hyperwallet, Koho, Mogo, FISPAN, Trulioo, and Grow, which have all announced exits or major rounds of funding. At the start of 2020, MasterCard was invited by the federal government to open another global technology center, which would be it’s sixth in the city, and the total investment planned would be around C$510 million.
Additionally, both Microsoft and Amazon have recently announced major plans for expansions in the north of Vancouver, and the former has planned to add more than 3,000 jobs to the city in the coming years.
Like Vancouver, Calgary is also getting a growing reputation as a fintech hub; 80% of fintechs in Alberta have established bases in the city. The city has opened its doors to well-rounded technology talent, and even though Calgary doesn’t have a large concentration of ‘digital workers’, especially related to other cities in Canada, it does pose the highest figures for overall technology employment, which is mainly thanks to the engineering talent in the resources industry.
The past couple of years has also seen provincial politics play an influential role in the city’s tech community and improving the economy. Fintech activity is increasing slowly, which can be seen with Morgan Stanley’s acquisition of Solium Capital, around C$1.1 billion, and Symend’s Series B round, worth C$73 million, making it one of the largest in the history of the province. These were bright spots in the past couple of years.
Helcim also launched a proprietary payments stack in June 2020, which will compete against their competitors like Square and Stripe and will be another challenger in Calgary to keep an eye on. The fintech ecosystem in the city has ended on a high note for the year after the CAD $50 million financing round for Neo Financial. The startup is looking to build the newest neobank in the country.
With approximately 15% of fintech in Canada found in Quebec, it has established the Montreal area as one of the leading fintech hubs in the country. The brilliant track record of Montreal has been the growing number of fintech-specific accelerators and venture capital firms. Real Ventures, Investors Luge Capital, Holt Accelerator, Diagram Ventures, and Ferst Capital Partners are the most active in the industry.
As corporate-backed interests have increased in recent times, National Bank has continued to invest actively from its NAventures arm, which has seen Desjardins Capital announce that they are launching a C$45 million fund that is fintech-specific in the middle of 2019. Numerous major fintech in Canada, like Nuvei and Lightspeed, have their headquarters in the city, which has also benefitted from the technical and academic research institutions like CDL-Montreal.
The city’s industry roundtable, Finance Montréal, rounds out the robust ecosystem as the purveyor of the annual Canada Fintech Forum conference, the fintech Station co-working space, and backer of the newly created AMF-Finance Montréal Research Chair.
Collectively the Atlantic provinces made up one of the smallest hubs examined, with approximately 14 fintechs headquartered there. And yet there are many reasons to be excited about the future of East Coast fintech. Highlights include Canada’s largest-ever venture deal, at C$515 million, going to St. John’s-based fintech Verafin in 2019, followed by its acquisition by Nasdaq in late 2020 for USD$2.75 billion.
As part of the deal, Nasdaq committed to maintaining the company’s St John’s headquarters and investing in local talent, R&D, and corporate citizenship. Discussions with fintech founders and executives from the region revealed the quality of life and cost competitiveness as the top reasons for choosing Atlantic Canada as a home base.
Atlantic Canada is home to competitive talent regarding technical roles such as developers, especially compared to hubs such as Toronto and Montreal, where recruits may be courted away by larger players. Given the region’s highly trained, bilingual workforce, work-from-anywhere policies coming in the wake of the pandemic may spur further hiring activity and fintech growth.
It’s an exciting and constantly changing business landscape, and we look forward to seeing even more change in the months to come. Canada will be in a position to build on its current position to attract foreign investment and export fintech successes.
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