Derek Colfer
Head of Technology and Digital Innovation - Visa Canada
Part of the Spotlight on FinTech

The Compact Nature of the Canadian Banking Landscape is an Opportunity for FinTech

Takeaways

  1. It is easier for a FinTech company to reach a greater percentage of the Canadian market because of its landscape dominated by a few large incumbents.
  2. Collaboration between FinTech and AI will shape the future of financial services.
  3. Cyber security is a major issue for the FinTech sector, because data sharing is entirely based on trust.

Action

FinTech companies in Canada need to collaborate with different actors such as payment networks, banks, insurance companies or investment companies to reach consumers in the Canadian market.


How would you describe the current state of the banking and FinTech sectors in Canada, and the forces shaping them?

Most banks in Canada have their own FinTech consumer use cases, features and functions. For example, Canadian banks led NFC (near field communication) payments globally. Banks will continue to provide a very distinct foundation for the success of the financial sector. If you want to develop a FinTech entity, Toronto is a good place to do so because you only need to have a handful of meetings given the size of the industry in Canada. While there are many opportunities south of the border, there are massive efficiencies in Canada with regard to partnering with banks.

“While there are many opportunities south of the border, there are massive efficiencies in Canada with regards to partnering with banks.”

The depth and breadth of the Canadian workforce is also very conducive to innovation. We have some of the world’s leading engineering and business schools in addition to several technology hubs like Communitech and DMZ. These unique ecosystems have helped to accelerate the development and commercialization of FinTech in Canada quite successfully. Canada has a lot of FinTech players that are building their roots locally and expanding globally. The geographic borders are starting to disappear. With the power of the Internet and FinTech, it does not really matter where you are. If you can develop a successful product and get it out there, people will use it.


How important is collaboration between incumbents and FinTechs for the success of Canada’s FinTech sector? What forms is this taking?

There will always be lots of collaboration in the FinTech space. Visa has tried to develop a ‘digital first’ strategy, which usually entails forging a partnership with a FinTech company alongside our existing clients to pilot a new product in the Canadian market. Generally speaking, FinTechs will follow the path of least resistance from a business development perspective. That means that they could work with a payment network, a bank, an insurance company or an investment company depending on the context.

“FinTechs will follow the path of least resistance from a business development perspective. That means that they could work with a payment network, a bank, an insurance company or an investment company depending on the context.”

When it comes to technological collaboration, sprinkling a bit of AI into FinTech improves the consumer experience, especially with data-driven services like investments. It is not to say that the AI would know which share to buy at a specific point and when to sell it. But, it might lead to more informed decisions for a consumer in a pretty complex environment.


How is the issue of cyber security being addressed?

Trust and the protection of data are an enormous responsibility, which we take very seriously. Visa’s cyber defenses are certainly the most sophisticated in the world. We invest more heavily in network security than any other area of our business. We rely on layers of security and technologies to protect the value of the data flowing through our systems although we know that no network is 100% detachable. So far, our approach has been effective in preventing criminals from breaching our perimeter and ex-filtrating data. Today’s criminals are sophisticated and adaptive; they are as aware of technological developments as we are. Data security technology has put an even greater emphasis on the importance of a multilayered approach to security. Trust in Visa’s security mechanisms has taken decades to establish, but could be lost in a nanosecond in today’s digital environment.


Which are the major digital innovations that Visa Canada is currently working on that have the potential to transform Canadian financial services?

There are two that we are focused on right now: the Visa Token Service (VTS) and Visa Developer. A large number of primary account numbers (PAN) are circulating in an unsafe environment today, which can lead to breaches. We are taking the PANs out of the system with the Visa Token Service, which replaces the PAN with a token that has no value. VTS’ first commercial deployment was with Apple Pay, followed by Samsung Pay and Google Pay. It will become even more important as we develop the Internet of things (IoT). Today, billions of consumers carry Visa cards globally and there are 7 billion mobile devices in the world. In the next five years, we should expect to see 30 billion IoT connected devices. So, as we accelerate the growth of those end points, we will need to ensure not only the scalability of our network, but also its security, which is where the Visa Token Service comes into play.

“By 2050, we will see a lot of very mature financial products that leverage machine learning, artificial intelligence and virtual reality.”

Secondly, Visa Developer is a recent innovation that has the potential to transform digital commerce. It is focused on opening up the edges of our network to acquirers, merchants, issuing partners as well as other people in the FinTech space. Through Visa Developer, we have exposed a series of APIs, which allow our partners to evolve their digital commerce use cases. It is a transitional time for Visa as a company. For decades, we have been a technology payments company. With Visa Developer, we have become an enabler of digital commerce experiences, which is very exciting for our clients.


How do you imagine Canada’s financial services industry in 2050 and how will it transform the rest of the economy?

By 2050, we will see a lot of very mature financial products that leverage machine learning, artificial intelligence and virtual reality. I also expect that we will no longer need to use plastic cards and other digital form factors to transact. Walking into a physical or digital store and departing with a purchase will be seamless. Checkouts could disappear entirely online and offline by 2050. I honestly think thought-based payments could be a reality. Both my sons will be in their late 30s and they will know real time what they need to do financially to meet their goals in the next 15 days or the next 15 years.