Italian Chamber of Commerce in Canada West | The growth of the FinTech industry in Canada
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Fintech Startup

02 Feb The growth of the FinTech industry in Canada

Why are startups and large FinTech companies looking to Canada to expand their business? The country’s financial stability is not the only reason. Alongside solid economic indicators, Canada also offers an integrated strategy that supports innovators with financial tools, networking and resources.

Mario Giacomelli*

There is a lot of talk about the FinTech industry in Canada and how, especially in the last five years, it is developing enormously, so much so that it competes with the more renowned Silicon Valley.

 

But let’s proceed in order.

 

What exactly is FinTech and what are the main applications in Canada?
 

FinTech companies are those companies that create and distribute innovative financial products or offer technology services for financial institutions.

FinTech in Canada is experiencing strong development, mainly in the following sectors:

 

  • Services for accounting, cost management and corporate taxes
     
  • Services related to blockchain and cryptocurrency technology offered to financial institutions or directly to end users
     
  • Services for financial markets. This category includes services to support the issue of securities, trading and settlement processes

 

  • Online Banking and Digital Infrastructures for Banking Institutions
     
  • Management of processes related to Human Resources, payroll and company benefits
     
  • Technological services for the insurance sector
     
  • Business-to-business, business-to-consumer, peer-to-peer and financial institution payments
     
  • Money transfer and household account management

 

The following table represents the main sectors of application of FinTech and the most important startups of 2019.

 

 

FinTech startups: why in Canada?

 

Let’s now see to better understand how and why Canada has become so attractive for startups in the FinTech sector.

 

Canada has historically been a country that greatly supports the establishment and development of innovative entrepreneurial activities. In fact, in 2019 alone, Canada has dedicated important economic resources at the federal and provincial level to the promotion of innovation.

 

A list of 5 technology Superclusters has been drawn up that will have access to approximately $ 950 million in federal funding over a five-year period with the aim of developing hubs across the country within which companies, academic institutions, and non-profit organizations can collaborate with the aim of promoting innovation.

 

Within this scenario, FinTech companies continue to grow and play a fundamental role within the Canadian startup macrosystem.

 

The main financial institutions themselves are investing huge resources in FinTech, with particular attention to companies that develop Artificial Intelligence, Robo-Advisory and technologies for digital payments.

 

With regard to the payment sector, the introduction of new technologies is leading Canadian consumers to adopt digital payment methods very quickly compared to traditional payment methods.

 

Electronic payments in Canada now account for 73% of the total payment volume.
 

There has also been significant growth in the cryptocurrency sub-sector in recent years.

 

The first Blockchain exchange-traded fund (“ETF”) on the Toronto Stock Exchange was launched in February 2018, followed by two other blockchain-related ETFs in the same year.

 

Regarding access to finance and investments, fintech companies have access to different sources:

  • federal and provincial funding
  • traditional financing and alternative financing such as venture capital and crowdfunding

 

Venture capital is today the most widespread method of financing: in the first half of 2019 alone, investments in FinTech startups through venture capital and acquisitions totaled $ 1.55 billion.
 

In addition, a growing number of peer-to-peer lenders are making it possible for even small investors to set foot in the industry by contributing a minimum of $ 25 to the financing of a FinTech startup.

 

As anticipated, the Canadian government is playing a key role in the growth of the sector.

 

 

The incentive system in Canada

 

In addition to the economic commitments already mentioned, there are numerous federal and provincial incentive systems for startups and small and medium-sized enterprises. Particularly interesting are:
 

  • [The Scientific Research and Experimental Development Program] which encourages research and development by providing tax incentives for Canadian and foreign companies that can apply for tax credits for investments in R&D
     
  • The Industrial Research Assistance Program [IRAP] which helps companies in the development of technologies and their commercialization by providing financial assistance, consulting services and by putting the startup in contact with industry experts and potential business partners. IRAP also provides financial assistance for the recruitment of personnel.

 

In this context, it is no coincidence that the sector is growing strongly, that very interesting companies are born and that specialized hubs are being developed throughout the country.

 

The Toronto-Kitchener-Waterloo district plays a leading role in the country’s FinTech scene with its 200 startups, 20 incubators and an annual growth rate of 118% (one of the highest in the world).

The Montreal area, with its very high concentration of researchers and students, is also a rapidly growing hub, especially for artificial intelligence and analysis.

 

In addition to the two main districts just mentioned, other important hubs and associations are emerging across the country.

 

Particularly interesting is ColliderX the world’s first open-source, crowdsourced, and crowdfunded blockchain research and development hub.

 

For an Italian company specialized in the sector and willing to expand its activities in North America, Canada can be an excellent springboard.

 

To make Canada a valid support for overseas expansion are:

  • state incentive programs
  • access to private investors and venture capitalists
  • stable financial system
  • low corporate taxation
  • access to specialized resources
  • proliferation of hubs and incubators
  • geographical proximity to the United States

*Consultant for business internationalization
Email: mario.giacomelli@consultingTO.com

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