Like most Canadians, I have friends and colleagues who live in the States. Although Toronto is a unique city, my day-to-day life is not all that different from the lives of these people who live in major US cities. Our routines are similar: we shop at many of the same stores, we eat lunch at the same restaurants, we grab coffee at Starbucks, etc. From a tech perspective, we use a lot of the same apps—from transportation, to food & beverage, to live events, and travel. There’s an incredible amount of innovation shared between our two countries that positively impacts the daily lives of folks on both sides of the border. But there’s one glaring exception: personal finance and banking.
Think about it—have you ever had an American friend ask you what your Venmo is? Or have you ever wondered why investment apps like Robinhood haven’t made their way north? The reason is that, simply put, Canadian and American financial institutions are fundamentally different. Here in Canada, banking is highly controlled and regulated by the federal government. The ‘Big 5’—RBC, TD, Scotiabank, BMO, and CIBC—dominate our nation’s banking industry and are responsible for managing the lion’s share of the wealth in Canada. Contrast that to the situation in the US, where looser federal regulations have enabled the creation of thousands of banks, many of which operate at a state or municipal level. With such heavy involvement from the government, what Canada gains in financial stability and consistency, it loses in its ability to innovate.
From my vantage point, this is a problem. The big banks in Canada don’t have a significant incentive to partner with forward-thinking startups to address emerging consumer needs in banking, so innovation in the sector has remained stagnant. What’s also true, though, is that most Canadians don’t know what they’re missing—in Toronto, we still live in a world of e-transfers and Interac; a world where banking is functional, and unfortunately, boring.
A missed opportunity for innovation
I believe that fintech innovation in Canada is a true missed opportunity. I believe banking and investment should feel more like an enjoyable social experience, rather than a purely utilitarian one. In the US, consumers are able to transfer funds or invest in stocks all from the convenience of their smartphones. People are able to comment on or react to payments from other friends in the same way that they engage with each other on social media. The ability for US banks and fintech companies to partner on interactive personal finance solutions removes the monotony of activities like paying bills or checking your portfolio. In this scenario, banking feels like fun.
There’s also a practical opportunity here. In Canada, the big banks’ grip over the financial sector results in a sort of ‘one-size-fits-all’ approach to banking solutions—each bank offers the same array of financial products that are meant to serve the needs of large demographics of people. In the US, the story is much different: the explosion of innovation in fintech has paved the way for personal finance applications that serve nearly every conceivable group of people—companies like Daylight, First Boulevard, Greenlight, and Moves. To me, this approach makes a ton of sense. Every person has a different set of needs and interests, and these needs must be reflected in the types of banking options that are available. Or, put another way, how can Canadian banks that are designed to serve tens of millions of people actually meet the needs of any one particular person? The reality is that they can’t.
This is a snapshot of the status quo—two distinct banking and financial systems that have produced two distinct approaches to financial innovation. As the CEO of a Canadian fintech company operating in the US, I’m often asked how Canadian companies should navigate these two worlds. How do you innovate in a sector where the rules of innovation vary drastically between countries? Here are a few pieces of advice, depending on where you sit in the innovation cycle.
In Canada, our industry is trading innovation for stability. The question I’d pose to policymakers in the sector is how can we incrementally open the door to more innovation, without jeopardizing the existing structures? We need to inch our way into more open and competitive banking by starting to open more charters. Let’s start small—why not offer two new charters this year? Despite incumbent pressure and opposition from the Big 5, policymakers should strongly consider it.
The simple reason is this: competition benefits everyone. If a company such as Wealthsimple was given a charter to become a bank, it would force the entire Canadian banking industry to become more innovative. The Big 5 would benefit from being challenged to build better products—and the gradual opening of smaller banks in Canada would pave the way for this to happen. As a result of this increase in competition, the consumer wins. Everyday Canadians will ultimately get better banking products and experiences customized to their needs.
If you’re building fintech in Canada right now, don’t be afraid of the US market. One of the biggest limitations in Canada is a lack of available infrastructure to build upon; that already exists for fintech companies in the US. In theory, what you could build in a few months in the States would likely take years to build in Canada. This is largely due to the fact that you would effectively have to build the backend of a bank in order to create a front-end consumer experience. This process is time-consuming, and resource intensive.
Another piece of advice: don’t try to operate on both sides of the border from the very beginning. If you were building almost any other consumer product, this wouldn’t need to be part of your calculus—but as a Canadian fintech entrepreneur, never forget that you are building in a heavily regulated industry. And because of this reality, there are few fintech companies that started in Canada before breaking into the American market. But, on the positive side of things, most people have come to expect a boring banking experience in Canada – so all it takes is a little bit of creativity to really ‘surprise and delight’ the end user. Fresh thinking and original ideas go an extra long way north of the border.
When I think about the Canadian fintech landscape as it stands today, my mind naturally goes to success stories like Wealthsimple and KOHO. No doubt, these companies have made a big impact—but for a country of our size, there should be dozens of these successful case studies, not just one or two. Despite the many intrinsic barriers to financial innovation in Canada, I remain optimistic. There’s no shortage of brilliant minds in this country and there’s no shortage of potential for this sector. With some incremental policy shifts, I can see a very bright future for the next generation of Canadian fintech entrepreneurs—all growing successful companies from within this country.