Jeff Hindle
Managing Director, Finance and Commerce - MaRS Discovery District
Part of the Spotlight on FinTech

Collaboration, Not Competition, is the Future of Canada’s FinTech Industry

Takeaways

  1. Canadian start-ups focus on generating revenues from the outset, which may not allow them to scale up as rapidly as foreign competitors.
  2. FinTech does not want to entirely disrupt Canadian banks. Its potential lies in bringing innovation to the financial and banking institutions to improve their offering and services.
  3. Canada’s leadership in privacy, AI and quantum computing will be a significant advantage to its FinTech sector.

Action

In order to support innovation, the Canadian government and private sector should prioritize buying from Canadian entrepreneurs.


How would you describe Canadian FinTech companies’ approaches to scaling-up? What can be done to support our financial innovators through this stage?

For Canadian companies, the “valley of death” problem is relatively smaller because a lot of Canadian entrepreneurs focus on revenue early on. We are a smaller country, so the business culture here is more self-reliant. The idea of getting endless venture capital for a company that is not earning profit is very challenging in the Canadian context. So, Canadian entrepreneurs tend to be more practical, in terms of business development and revenue. That results in more careful thought about the value proposition and monetization strategy of the business.

“The acceleration from proof of concept to fully profitable business occurs earlier [in FinTech and Canada generally], sometimes at the cost of lower absolute growth – Canadian entrepreneurs tend to be more practical.”

On the other hand, when Canadian entrepreneurs pursue monetization, they have to make a compromise, often against overall scale. Companies elsewhere are running and being financed with no expectation of making money. They are simply trying to acquire customers or transaction volume. In the Canadian context, we like our companies to generate revenues and become profitable before financing them. So we scale things down, which can put our companies at risk. It means that the acceleration from proof of concept to fully profitable business occurs earlier, sometimes at the cost of lower absolute growth – Canadian entrepreneurs tend to be more practical. At the end of the day, scaling up is a function of having access to diverse sources of venture capital that could support Canadian firms to deliver services internationally.


How can the public and private sector further the growth of the Canadian FinTech industry?

It would be great to see more of a focus on buying Canadian, if you will. Canadian companies and government should invest in and support Canadian innovation. I would like to see the government allocate more of its procurement budget towards Canadian innovation firms. The federal government’s recently created Innovative Solutions Canada program is a good step towards this since it will require 20 federal departments to set aside 1% of R&D budgets, amounting to $100m annually, for Canadian start-ups.

“I would like to see the government allocate more of its procurement budget towards Canadian innovation firms.”

Most FinTech organizations are not expecting to disrupt financial services entirely. It is not in the interest of Canadians to have the major banks be heavily disrupted. Instead, Canadians would certainly benefit if banks offered higher quality services at cheaper prices. The potential in the finance sector is in the collaboration between large banks and FinTech.


How do you think the mainstreaming of cryptocurrencies could affect FinTech domestically and internationally?

Regulation can never be ahead of technology, especially technology like cryptocurrency, which is hard to keep up with. So our regulations definitely need to be more agile in order to evolve at the pace of progress. Regulation may have to evolve from a specific rule based mode to more of a principles based framework.

10 or 20 years from now, will there be a cryptocurrency whose digital DNA can be brought back to blockchain technology? Yes. Will that be Bitcoin? I am not so sure. Some form of blockchain technology will be global because it caters to real business needs.

“The ICO market has illuminated to the world the need to revisit startup funding.”

The ICO market has illuminated to the world the need to revisit startup funding. It has demonstrated that there is a lot of capital that could be mobilized to invest in both fantastic new opportunities as well as in questionable innovation. There is great opportunity that blockchain and cryptocurrencies present, but some people have been able to take advantage of the system and coin investors. So, this entire sector needs a framework around it. If we could talk about financial literacy half as much as we talk about consumer protection, we would be making strides. As much as Canada wants to protect consumers around ICOs, Canadians are going to be participating in them, even illegally. So our biggest weapon is to educate them about financial services and the questions they should be asking. Financial literacy is a challenge in Canada and people need to understand options so they can make appropriate decisions. That is important for both incumbents and the FinTech space.

Businesses pursuing ICOs have diverted or distracted a lot of top talent and resources that have been working on blockchain. That has been a major setback for the blockchain industry as a whole.


What is MaRS’ strategy when it comes to backing certain startups over others?

MaRS has four different towers: health, work and learning, energy and environment, and finance and commerce. There are a total of more than 1,200 ventures at MaRS, of which about 400 are with the finance and commerce team. Some of the ventures are relatively small and are just getting started. But more than 100 and probably close to 200 ventures are in fact firms generating real revenue.

MaRS provides a number of services including direct coaching and indirect advice. Our primary role is to connect people to capital, talent, corporate partnerships or marketplaces.

“Financial literacy is a challenge in Canada and people need to understand options so they can make appropriate decisions. That is important for both incumbents and the FinTech space.”

MaRS does not choose ventures. We are not here to pass judgment on whether somebody has a good idea or not, because nobody has a monopoly on creativity. We do our best to help organizations become successful. Quite often, we see someone within our ecosystem who is expressing an interest in a particular topic or opportunity. So we help them understand the opportunity and identify their potential network by working with groups, organizations or individuals.

On the other hand, if a corporate partner is looking for someone to solve a specific problem, MaRS helps it identify and connect with the firms that are best prepared or closely aligned and interested in providing those types of services. MaRS’ scale, awareness and knowledge make it a great enabler of innovation.


How competitive will Canada’s financial services industry be in 2050?

From my experience having worked on every continent except Antarctica, I would say that Canada is in an excellent position. First of all, the Canadian brand is tremendously strong and well respected. People around the world value and listen to the ideas that come from Canada. One game-changing Canadian idea is around ID and authentication by firms like SecureKey. Canadian work on privacy will allow people to share, control and understand their data.

“Canada’s leadership in quantum computing along with technological progress in ID and authentication, privacy and fair transactions, will make the country a world leader in FinTech.”

Canada is and will continue to be thought leaders in a number of areas and artificial intelligence is one of them. If we continue our investment and work in AI, we will be leading the world in this space on a regular basis. Finally, Canada’s leadership in quantum computing along with technological progress in ID and authentication, privacy and fair transactions, will make the country a world leader in FinTech.