The Beginning of the Next Phase of Financial Service Innovation

How is FinTech changing and influencing Canada’s traditionally conventional financial services sector?

Canada’s tight banking structure and conservative financial culture have been good for financial services broadly. FinTech has challenged some of that conservatism to begin to modernize, innovate and adapt to current technological advancements. While our financial conservatism has been a strength of the Canadian market, it has perhaps meant that we have moved a little bit slower than our counterparts in the US. The US is a bigger market, but they are also more progressive in terms of their approach. But, Canada is starting to catch up.

“While our financial conservatism has been a strength of the Canadian market, it has perhaps meant that we have moved a little bit slower than our counterparts in the US.”

FinTech is quite a broad term and it covers a number of different areas, be it payments, payment processing, lending, consumer lending, business lending or blockchain. The influence of FinTech has started to creep into the financial services world and banks are now focused on moving things digitally. We are at the beginning of the next phase of financial service innovation and it is going to entail a full digitization of financial services, which will benefit consumers and businesses alike.

How can Canada create a better ecosystem for FinTechs to start-up and scale-up here?

We need an open banking system similar to the Revised Payment Service Directive (PSD2) in Europe. We need to open up data, protect data and ensure authorization for the release of that data. We must also modernize the payment networks by conducting immediate debits and credits via the blockchain or a much faster Electronic Funds Transfer network. Facilitating the movement of funds and data in a much more seamless way is key to our FinTech future.

“Facilitating the movement of data and funds in a much more seamless way is key to our FinTech future.”

The government must help put the infrastructure in place for that shift and regulate it. The Payments Canada framework that has been introduced for the modernization of the payment rails or payment networks is one of the most important steps to increasing our FinTech competitiveness.

“We need to open up our banking system to be more globally minded and make cross-border transactions more seamless.”

Moreover, we need to open up our banking system to be more globally minded and make cross-border transactions more seamless. We are starting to see the government open up as it has introduced a review of the Bank Act. So, it is now cognizant of the impact of FinTech and it is trying to spur innovation while maintaining the stability that we have been so fortunate to have.

How is Evolocity leveraging technology to improve the financial services offering?

Evolocity started out with the mission of disrupting the way in which working capital or financing loans were obtained. We wanted to make the process more digitized, more aligned, more streamlined and more convenient. We also wanted to move away from the longer process of going into the banks and filling out paperwork.

We work with small and medium sized businesses loans from $10,000 to $300,000 in industry categories that have been traditionally underserved by the banks. When we first started, Canadians were not used to alternative lending and finance. But, as we have developed our platform and consumers have gotten more comfortable, they have embraced it more and more. They specifically appreciate the speed, that is, being able to get financing within three to five days and the convenience of uploading bank statements online.

“We work with small and medium sized businesses loans from $10,000 to $300,000 in industry categories that have been traditionally underserved by the banks.”

Over the course of the years, we began accumulating a lot of data to differentiate between good and bad loans. Then we began introducing things like machine learning and artificial intelligence to make even better predictive decisions with large amounts of data. So for us, AI and machine learning are core to our business and platform. The faster we can make decisions and get capital into the hands of merchants, the better it is for them and us.

Technology is at the core of what we do. We have three elements of technology in our platform. The first is the front-end application for businesses to apply for a loan and input the data that we need. The second is our risk algorithm for which we get data from numerous sources in order to make decisions. We get bank data feeds directly from the banks and put them into our algorithm, which gives each loan an Evolocity score. On the backend, our loan management systems digitally handle the entire life cycle of a loan. All of those things are continuously being developed and we do quite a bit of R&D to augment all three areas of our platform. We need to tap into different solution providers or clusters because we do not have all the expertise, particularly in AI. So we are trying to work with universities to bring in talent and work with clusters to help guide our future algorithms, which are going to be much more AI-focused as we move forward.

What have been your biggest challenges as a FinTech start-up in Canada?

The biggest challenge was accessing capital. We were either too small for certain players at a certain point, or too big for others. The Canadian banks originally would not lend to lenders, but they eventually got more comfortable with us. However, we had to go to New York to get financing at a certain point because it just was not available in Canada. Having to go to New York to get financing for a Canadian FinTech start-up was eye opening and again, not having a track record in the early days made it a lot more challenging. Once we obtained financing from a hedge fund in New York, we were able to scale the business. Secondarily, we needed to make sure we found, retained and motivated good talent, which is still a challenge.

“We had to go to New York to get financing at a certain point because it just was not available in Canada. Having to go to New York to get financing for a Canadian FinTech start-up was eye opening.”

How do you envision Canada’s future economy, including, but not limited to, FinTech?

I think we are going to see accelerated disruption of the elements that are currently being disrupted. I think the financial services industry will continue to evolve in terms of the disruption we are seeing today. This includes banks shrinking their retail footprint and increasing the digital aspects of their operations.

If we look at the transportation sector 20 or 30 years from now, I can only see a much more disrupted, sophisticated transportation grid that is based on electric energy, so I think the real transformation in transportation is coming and is just beginning now.

“The financial services industry will continue to evolve in terms of the disruption we are seeing today. This includes banks shrinking their retail footprint and increasing the digital aspects of their operations.”

One of Canada’s strengths will be some of the societal conveniences that mobile apps are driving. For example, we are seeing the convenience of ordering meals to your home with a push in an app. I think that will continue to spread to all aspects of society with increasing convenience. We may get a little bit lazier and I think convenience is going to be at the heart of disruption 20 years from now – you are going to be able to push a button for almost anything.