- The financial services industry will be much more technology-driven as the consumer market gets more dominated by millennials who are comfortable with tech, getting jobs and going into the workforce.
- Incumbents are threatened by disruption by FinTech on one hand, but also want to ride the trend of digital innovation on the other.
- Start-ups should start out by defining and solving a real problem in the industry to deliver value, instead of just trying to disrupt the financial landscape or creating another cryptocurrency the market does not need.
Educational institutions must integrate digital disruption and technical coding skills into their curricula for all majors.
What are the biggest challenges that FinTech start-ups face in Canada today?
The biggest challenge is the regulatory environment. A lot of entrepreneurs do not have the resources or the industry experience to navigate the regulatory framework around FinTech. For example, any start-up in the highly regulated securities transactions space faces decades-old protocols such as know-your-client (KYC) forms, which are labour intensive and hard to automate.
“A lot of entrepreneurs do not have the resources or the industry experience to navigate the regulatory framework around FinTech.”
Another challenge is around payment. Moving money in Canada is relatively difficult and expensive. Payment application programming interfaces (APIs), such as Ripple in the US, have made transactions a lot cheaper and affordable. But in Canada, there are no such frameworks that would enable entrepreneurs to build apps, to take payments and transact in an affordable way. This creates an additional barrier to entrepreneurs who are looking to build FinTech start-ups and operate in Canada.
How can Canadian educational institutions better prepare students for the FinTech industry of the future?
One of the things that a lot of Canadian universities can do better is integrating digital disruption and FinTech into their curricula – and I am not just talking about business schools. It is important that educational institutions in Canada realize that technology is becoming ever more integral to all fields like healthcare, finance, education etc., so coding skills are essential regardless of one’s background or area of study. Things like introductory courses to programming and data science are all curricula that should be mandated to help students build a baseline understanding of tech.
“It is important that educational institutions in Canada realize that technology is becoming ever more integral to all fields like healthcare, finance, education etc., so coding skills are essential regardless of one’s background or area of study.”
Secondly, it is important to educate business school students around digital disruption. There has not been a course dedicated to that but it should be part of the mandatory curriculum both at the high school and university level. At Ivey, for example, one of our professors at the Scotiabank Digital Banking Lab is beginning to offer courses on FinTech and digital disruption, which is fantastic news for students. But sometimes, school administrations can be slow to act, so a lot of student groups work to increase students’ exposure to technology. For example, I co-founded Western Founders Network, a student entrepreneurship program, to help improve programming literacy and teach students how to code. We organize student-led programming seminars ran by engineering and computer science students to provide coding education. Our goal is to ensure that these skills are transferred from the people who have the knowledge to others who might be interested in the space.
“The world doesn’t need another messaging app or another bitcoin or cryptocurrency. Instead, start-ups should start with a problem and figure out how to solve it and deliver value.”
In this vein, Ivey FinTech is a student led initiative at the University of Western Ontario, which aims to increase students’ exposure to FinTech and digital disruption. We ensure that students have a platform to voice their opinions and help shape the future of finance by researching and authoring articles on the FinTech space. We publish them on our platform called the FinTech Perspectives, which is not only an online publication but also a quarterly magazine. We also provide opportunities for students who are interested in FinTech and are looking to get involved in the field by placing student leaders into local FinTech start-ups in Toronto to do pro-bono consulting work. Finally, we organize case competitions. Last year, we brought together over 500 students from 10 universities in Canada for a case competition in partnership with IBM Canada and CIBC. Case competitions offer students a platform to explore the problems that large banks such as CIBC are facing and understand how they can leverage technology to create a better future in FinTech.
How open do you think large private sector incumbents are towards FinTech today and what more do you think they can do to support the space’s development?
First of all, incumbents are concerned about FinTech start-ups disrupting their space. A lot of these companies are deep-pocketed organizations that have been around for a long time. They hire consultants to figure out how they can improve the digital experience for their customers and also acquire FinTech start-ups. These companies are making a lot of investments in order to be at the forefront of digital and have a more technology-enabled user interface to interact with clients. Due to changing demographics, more and more financial services customers are going to be millennials who champion mobile-first and technology.
“The rising popularity of FinTech start-ups is great for the industry and consumers, as more competition means that big banks cannot rest on their laurels and must continue to innovate.”
Secondly, they also want to do something to ride on this trend of digital disruption. They build innovation hubs, such us Scotiabank’s Digital Factory, the RBC GAM innovation lab, and CIBC’s Live Labs, just to name a few. These hubs help them find the technical talent to build a set of competitive tools to compete with FinTech start-ups and up-and-coming trends such as robo-advisors. These developments and the rising popularity of FinTech start-ups is great for the industry and consumers, as more competition means that big banks cannot rest on their laurels and must continue to innovate. Moreover, what usually occurs in the Canadian FinTech space is that when such start-ups become really successful, they get acquired by larger banks.
What are the three most important FinTech trends for Canada’s future economy?
Firstly, FinTech is a force that is reshaping banking. Financial institutions have a lot of data generated through decades of banking operations, but a lot of their systems are old and hard to access. For example, I remember working in a bank in the summer of my first year and they still used the DOS interface. Replacing these out-dated systems means that more of this data can be harnessed, be it for simple analytics or advanced artificial intelligence. It also unlocks the potential of the wealth of data, which presents a tremendous opportunity for new innovation that will accelerate FinTech’s development in the next 10 years.
“Due to changing demographics, more and more financial services customers are going to be millennials who champion mobile-first and technology.”
Second, Initial Coin Offerings (ICOs) are disrupting how FinTech start-ups raise capital. ICOs are not just applicable to cryptocurrencies. I think we could all agree that what is going on right now in the cryptocurrency space is merely a speculative bubble, and in my opinion, what would be left in the long run when the hype dies down are the innovations that came out of the space – such as blockchain and ICO as means of raising capital. Increasingly, FinTech start-ups are thinking about bypassing the traditional venture capital space and going for an ICO instead. So by issuing a coin, they raise capital for their idea, which does not necessarily have to be a cryptocurrency. Think of it as a new way of crowdfunding for start-ups. This is beneficial to the entrepreneurship ecosystem not only because it adds liquidity to these investments since coins are easily tradable, but because it also democratizes investments in early stage companies and lets retail investors participate in startup investing as well, which has traditionally been limited to wealthy VC investors.
Lastly, a lot of start-ups try to disrupt the status quo, but they do not consider the option of partnering with incumbents to solve a relevant problem. Oftentimes, start-ups are just products trying to find a market, but not so much products trying to solve a problem. The world doesn’t need another messaging app or another bitcoin or cryptocurrency. Instead, start-ups should start with a problem and figure out how to solve it and deliver value. I think we will see the fad of cryptocurrencies fading away over time, and the FinTech start-ups that will get to stay are the ones that truly deliver value and improve financial services.
How do you see Canada’s financial services industry in 2050 and how do you see it transforming the rest of the country?
The future financial services industry will be very focused on catering to the next generation – the millennials – that are now becoming adults, getting jobs and going into the workforce. Millennials champion technology and are quite comfortable with digital disruption, so the way people interact with financial services will be a lot more technology driven. In light of that, there is going to be more digital innovation from the big banks, innovation hubs and FinTech start-ups that will eventually start collaborating with the banks.
“Financial institutions have a lot of data generated through decades of banking operations. Replacing their out-dated systems means that more of this data can be harnessed [and] unlocks the potential of the wealth of data, which presents a tremendous opportunity for new innovation.”
It is not apparent how technologies such as blockchain will play out. The use cases around it are limitless, but one thing we could all agree on is that things like blockchain will play a prominent role in the future of our economy since it provides benefits such as higher transparency, lower cost, simpler transactions. Blockchain is a platform with so much benefits and it is only in its infancy. It is now what the internet was before the .com boom. It is going to become clear in 10 or 20 years when the technology becomes more mature and more widely used.
The financial services industry is still going to be the backbone of the economy. Digital innovation will increase the efficiency and pace of transactions and help us deliver more value to the economy.