Collaborating to win in Canada's Fintech ecosystem - Accenture 2021 Canadian Fintech report
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Collaborating to win in Canada’s Fintech ecosystem Accenture 2021 Canadian Fintech report
Contents Introduction 3 Executive Summary 4 Part 1: Canadian Fintech Ecosystem Analysis 5 Part 2: Financial Services Industry Outlook and Trends 34 Part 3: Global Fintech Ecosystem Benchmarking 46 Part 4: The Canadian Fintech Ecosystem: Looking Ahead 54 Appendix A: Global Fintech Ecosystem Benchmarking Methodology 58 Appendix B: Definition of Funding Types 61 References 62 2
Introduction
As the pace of change continues to accelerate, industry boundaries blur;
financial institutions, now more than ever, are adopting the mindset of
technology companies. As both market and regulatory forces push these
Canadian companies into the spotlight, the financial services ecosystem may
be poised to deliver the most personalized and seamless digital experiences
Canadians have ever seen. This report offers insights into this ecosystem for
2020 in four parts:
Part 1: Canadian Fintech Ecosystem Analysis Part 3: Global Fintech Ecosystem
We examine the current state of the Canadian Benchmarking
fintech ecosystem - at both the national and Using our benchmarking model, we rank
city level - in terms of growth, talent, and four Canadian cities (Calgary, Montreal,
investment. We also discuss how incumbent Toronto and Vancouver) against 16 leading
financial institutions (FI) are responding and and emerging fintech hubs around the
collaborating, the importance of incubators world. This quantitative model draws on 46
and accelerators, and the government’s role in individual data points from various public
supporting even further innovation. and proprietary sources, distilled into five key
metrics.
Part 2: Financial Services Industry Outlook
and Trends Part 4: The Canadian Fintech Ecosystem:
We elaborate on key emerging trends we Looking Ahead
see as influencing the future direction of the Finally, we summarize our findings and explore
Canadian financial services industry. These opportunities to further accelerate the growth
include data ownership, privacy and digital of the Canadian fintech ecosystem. Key
identity, the banking-as-a-service model, themes moving forward will be accelerating
the importance of small and medium-sized ecosystem collaboration, fostering innovation
business (SMB) clients, and several possible policy and expanding global recognition.
industry impacts from COVID-19.
3
Executive Summary
The Canadian fintech industry approached adoption of digital among Canadians, the
the end of 2019 on a bull run, entering a new long-term impact of COVID-19 on the pace,
decade with hundreds of nascent startups shape and evolution of the fintech ecosystem
supported by record levels of investment. remains to be seen.
Some of this success has been temporarily
overshadowed by COVID-19. Now cautiously As policy catches up to consumer behaviour,
navigating out of quarantine, we look back at Canada is already witnessing the emergence
an unprecedented year for Canadian fintech of modern enablers built for a connected
while examining trends that may shape the future. Several public and private bodies
future of the ecosystem. are pushing ahead with digital identity
projects, while banking-as-a-service models
Strong ecosystem partnerships coupled with are blurring the lines of what it means to be
sophisticated investors have helped Canadian a “fintech”. The pandemic also bared other
fintech startups during the crisis. Incumbents opportunities and gaps in the market. For
and startups alike have also found innovative one, fintechs demonstrated their resilience
ways to use their platforms to assist clients in a socially distant economy. The industry at
and the public at large during the pandemic. large may also help set new standards in our
Venture capitalists also remain optimistic post-pandemic world in areas such as credit
about future industry prospects, particularly decisioning and small business solutions.
given the country’s strong talent base and Cloud, AI and API technologies also stand to
cross-border appeal. offer evermore personalized and seamless
experiences.
The changing dynamics between fintechs
and other ecosystem participants - including Looking ahead, the Canadian ecosystem
incumbents, innovation hubs and the remains poised for growth. Our global
government - are also of interest this year. benchmarking study found that while
As more institutions develop technology Canadian cities are benefitting from the basic
partnerships, new strategies are emerging factors necessary to achieve international
for both serving and protecting customers. leadership, major hubs may still have room
Concerns about the privacy and security of to build stronger reputations as world-class
consumers have been raised in recent public fintech communities. Hubs such as Calgary,
consultations particularly when it comes to Montreal, Toronto and Vancouver might
rising usage of screen scraping technology. achieve this by fostering further innovation,
While the pandemic has accelerated the collaboration and international expansion.
4
Part 1:
Canadian Fintech
Ecosystem Analysis
5
I. Canadian Fintech Overview
Despite the challenges brought about by the global pandemic, 2020 remained
an exciting year for Canadian fintech*. As the ecosystem evolves, new
partnerships are being forged and international recognition is on the rise.
Although long-term trends shaped by COVID-19 remain to be seen, many
Canadian fintechs and financial institutions stepped up and pitched in from
coast-to-coast, despite the uncertainty. Looking ahead, we remain optimistic
about the country’s tech talent as well as the prospects for Canada’s growing
fintech hubs.
Canada’s Fintech Ecosystem is Evolving See the Venture Capital section for further
Last year the fintech ecosystem flashed investment analysis.
signs that may indicate shifts in the broader
industry are taking root in Canada, perhaps Aside from investment, the slowing rate at
accelerated by the pandemic. which Canadian fintechs are being founded
may indicate Canada’s fintech ecosystem is
By the end of Q3 2020, global fintech deal broadly evolving. The country is now home to
activity had declined by 24% in the prior approximately 700 fintechs, with 18 of those
12-month period.1 While preliminary global founded in 2020. This is the second straight
Q4 figures indicated a bounce back may be year in which the number of fintechs founded
underway, both deals and dollars were still on has declined, and represents a material drop
track to decline from last year.2 Notably, global from the 43 founded in 2019 (see Figure
seed-stage deals have been projected to fall to 1.1). Such a decline may be attributable to
37% of total activity in 2020, with later-stage various interrelated trends, with early-stage
deals gaining in share.3 financing challenges discussed above being
one possibility. The economic recession
While Accenture analysis found early-stage initiated by COVID-19 may have also caused
deals’ share of deal volume stayed relatively some would-be entrepreneurs to temporarily
consistent in 2020, average early-stage deal pause projects. Based on research conducted
size has dropped since the beginning of the throughout the rest of this report, longer-
pandemic.4 Venture executives have lamented term possibilities may include an accelerating
this challenge over the past year. After convergence of offerings leading to a more
graduating Acceleprise’s first Canadian startup crowded market, or the rise of later-stage,
cohort in 2020, CEO Michael Cardamone large-scale fintech employers. Examples
stated his team “didn’t fully realize how of the latter might include fintechs such as
much of a funding gap there is in Toronto for Lightspeed or Wave, who both achieved
the pre-seed stage”.5 Likewise, Brightspark high-profile exits in 2019 while continuing
Ventures’ Managing Partner Mark Skapinker to expand the breadth and depth of their
described Canada’s situation in 2020 as “a services across industry boundaries into 2020.
little bit of a seed crisis”.6 On the other end
of the spectrum, one area where Canada may
be diverging from global trends includes so-
called fintech “mega-rounds”. Whereas 2020 *This report defines Canadian fintechs as those firms that are
headquartered in Canada, founded after the year 2000, and
represented a high watermark for these major whose main products leverage technology to offer financial
deals globally as high-tech solutions caught services that complement or compete with products provided
by established financial institutions.
the attention of investors during COVID,
Canada’s share has declined as of Q3 2020.7,8
6
Figure 1.1: The number of Canadian fintechs founded, 2000 – 2020. The number of new fintech companies
established has declined since 2017.
120
101
100
80 75
70 70
66
60 56
42 43
40 35
15 15 15 15 18
20 11 13
8 8 6 6 9
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Founding Year
Source: Accenture analysis of Crunchbase, Pitchbook, FinCadence, Maple FGS and CB Insights data.
Nonetheless, Canada still has opportunity for at which they can partner and collaborate.
growth when it comes to fintech adoption The Global Alliance Fintech Link, for example,
and financing rates (see Part 3: Global Bench- is designed to “streamline the partnership
marking). As these Canadian fintech leaders process for fintechs by providing clear
have emerged, public shareholders and early visibility of the customer problems facing
acquirers may now be looking past growth banks”.9 US-based companies and investors
to profitability. During this period of refine- are already betting on this trend accelerating.
ment, new opportunities may slowly begin to Former CTO of Koho, Kris Hansen, departed
emerge at the seams between large-scale, es- the Canadian challenger bank in October
tablished fintechs and incumbent institutions. 2020 to co-found a “marketplace”, Synctera,
Moreover, experienced talent incubated within designed to bring US community banks
these mainstay businesses may go on to lead a and fintechs together. Canada is already
new wave of innovative Canadian fintechs. on the company’s roadmap, according to
executives.10
Additionally, two further key trends observed
in recent years are set to drive the evolution
of the Canadian fintech ecosystem: 1) part-
nerships between fintech startups and in-
cumbents, and 2) growing global ecosystem
“Larger financial
institutions are
recognition.
In recent years, a significant increase has
been observed in the number of fintech-
incumbent partnerships, often designed to
bolster differentiated products and services. accelerating
Larger institutions have accelerated the ways
and means in which they engage innovation
partners, described in detail in the Canadian
Financial Institution Ecosystem section below.
innovative
Some, such as CIBC, Bank Leumi and National
Australia Bank, have launched dedicated
channels through which to accelerate the rate
partnerships.”
7
Finally, global attention and expansion An Overview of Canadian Hubs Poised to Grow
plans have become a more common sight As part of this report Accenture scanned the
among Canadian fintechs. Seven Canadian Canadian fintech ecosystem identifying nearly
companies recently appeared in CB Insights’ 700 fintechs across the country (see Figure
global 2020 Fintech 250 list.11 Mindbridge AI 1.2). About 60% of these fintechs reside in
and Trulioo were also featured in the World the province of Ontario, with many of those
Economic Forum’s Technology Pioneers of occupying Toronto and the Kitchener-Waterloo
2020.12 Moka (formerly Mylo) exemplifies the corridor. Given the many new and exciting
global dynamic well. After being featured technology developments across Canada,
in KPMG’s 2019 Fintech100 list, the savings below we highlight key developments outside
app was chosen by the UK’s Department for of Southern Ontario.
International Trade to join a trade mission
to Britain.13 More recently, Moka announced Vancouver
plans to expand to France and beyond.14 British Columbia is currently home to over 120
The company’s decision to swap names fintechs, with Vancouver itself fast becoming
was a direct consequence of going global, a well-rounded technology hub. US-based
with moka having fewer pronunciations and Chime established their first international
meanings across languages according to the office in the city in 2020. The challenger bank
CEO. Such commercial missions are becoming cited the city’s natural north-south disposition
more commonplace for Canadian fintechs. to American hubs as well as talent quality16,
The Finance Montréal cluster recently led factors which Canadian executives and
a number of foreign trips to better connect founders interviewed for this report reiterated.
fintechs of that city, while Toronto Finance Other notable success stories in recent years
International put out a call in October 2020 include the likes of Hyperwallet, Grow, Trulioo,
for fintech delegates to join virtual sessions in Koho, FISPAN and Mogo all announcing either
Tokyo, Singapore and the UAE.15 major rounds of funding or exits. In early 2020,
the federal government invited MasterCard to
open its sixth global technology centre in the
Figure 1.2: The nominal distribution of Canadian city, with a total planned investment of C$510
fintechs in operation by region, 2020. million.17 Additionally, both Amazon and
Microsoft have recently announced significant
expansions northward into Vancouver, with
the former planning to add 3000 jobs to the
city in the coming years.18
Alberta
40 Manitoba
2
Quebec
103
Source: Accenture analysis of Crunchbase, Pitchbook,
FinCadence, Maple FGS and CB Insights data.
Ontario
415
8
Calgary
Like Vancouver, Calgary’s reputation as a
fintech hub is a quickly growing one; 80%
of Alberta’s fintechs reside in the city. The
city is already home to a well-rounded base
of technology talent. Although Calgary has
“Montreal has
one of the lower concentrations of “digital”
workers among Canadian cities, it has
among the highest for overall technology
become one of
employment, buoyed by the engineering
talent working in the resources industry.19
The last few years have also seen provincial
the country’s
politics continue to play an influential role
on the city’s tech community and innovation
economy.20 Meanwhile, fintech activity is on
leading hubs.”
the rise. Morgan Stanley’s C$1.1b acquisition
of Solium Capital, and Symend’s C$73m Series
B round, one of the largest in the province’s
history, are significant bright spots in the
last two years.21 Helcim, who launched a
proprietary payments stack in June 2020 to Fintech Station co-working space, and backer
take on the likes of Stripe and Square, will be of the newly created AMF-Finance Montréal
another Calgary challenger to watch.22 The Research Chair.25
city’s fintech ecosystem ended the year on
a high note after Neo Financial’s CAD $50 Atlantic Canada
million financing round. The startup is seeking Collectively the Atlantic provinces made
to build the country’s newest neobank.23 up one of the smallest hubs examined, with
approximately 14 fintechs headquartered
Montreal there. And yet there are many reasons to
With approximately 15% of Canadian be excited about the future of East Coast
fintechs located in the province of Québec, fintech. Highlights include Canada’s largest
the Montreal area has become one of the ever venture deal, at C$515 million, going
country’s leading fintech hubs. A driver of to St. John’s-based fintech Verafin in 2019,
Montreal’s track record has been the hub’s followed by its acquisition by Nasdaq in late
growing slate of fintech-specific venture 2020 for USD$2.75 billion.26,27 As part of the
capital firms and accelerators. Investors Luge deal, Nasdaq committed to maintaining the
Capital, Diagram Ventures, Real Ventures, company’s St John’s headquarters, as well as
Ferst Capital Partners and the Holt Accelerator investing in local talent, R&D and corporate
are among the most active in the industry. citizenship. Discussions with fintech founders
With corporate-backed interest on the rise, and executives from the region revealed
National Bank continues to actively invest quality of life and cost competitiveness as
through its NAventures arm while Desjardins top reasons for choosing Atlantic Canada as
Capital announced the launch of a C$45 a home base.28 Atlantic Canada is home to
million fintech-specific fund in mid-2019.24 competitive talent when it comes to technical
Several major Canadian fintechs, such as roles such as developers, especially compared
Lightspeed and Nuvei, are headquartered in to hubs such as Toronto and Montreal where
the city, which also benefits from academic recruits may be courted away by larger
and technical research institutions such as players. Given the region’s highly trained,
CDL-Montreal. The city’s industry roundtable, bilingual workforce, work-from-anywhere
Finance Montréal, rounds out the robust policies coming in the wake of the pandemic
ecosystem as the purveyor of the annual may spur further hiring activity and fintech
Canada Fintech Forum conference, the growth in this region.29
9
Canadian Fintech Verticals to Watch Canadians struggled to pay bills on time
As exciting developments unfold across the and manage monthly expenses; COVID has
Canadian fintech ecosystem, three verticals exacerbated these challenges.35 In response,
are particularly well-positioned for growth a complement of PFM fintechs have thrived in
given current market trends: RegTech Canada to support customers, such as KOHO
(Risk), WealthTech, and personal financial and Moka. Watch for more fintech-incumbent
management tools (PFM). partnerships in this areas as well, both big
(e.g. Sensibill and JPMC) and small (e.g. DUCA
Recent drivers of RegTech adoption include and Cacheflow) demonstrating the value
pressure to reduce growing compliance that can be achieved by working together.
costs, increasing technical debt, mounting As consumer early-adopters have demanded
practitioner workloads and rapidly evolving better digital experiences, the broader market
regulations. A recent study estimated that may soon take notice of these powerful new
Canadian financial institutions spent over tools designed to help manage financial
USD$5 billion on AML compliance in 2019, wellbeing, especially in the wake of COVID.
with 96% of Canadian FI’s indicating they
expect cloud-based KYC utilities to provide The Payments, Lending, Back Office, and
standard support for these processes within Digital Currencies verticals are still amongst
five years.30 It’s little surprise then that the largest by number of Canadian fintechs
Canadian RegTech startups such as Trulioo, (see Figure 1.3). However, fintechs operating
Assent and Verafin have set funding records in or across the RegTech (Risk), WealthTech,
while achieving international recognition.31,32 or PFM segments may be some of the best
poised for future success in the coming years
The Canadian ecosystem has also benefitted should these trends continue or accelerate.
from an uptick in both retail and enterprise
WealthTech activity. Fintechs are now looking
Figure 1.3: The distribution of Canadian fintechs in
across the investment value chain to simplify operation by service offering, 2020.
the end-to-end investment process, from
manufacturers through to individual investors.
Other
Power Financial’s Portag3 Ventures doubled Capital Markets 3%
down on this thesis in early 2020 with a C$3 7%
Payments
million investment in Conquest Planning, 21%
Insurance
complementing their popular B2C portfolio 9%
company Wealthsimple.33 CI Financial
also added to their WealthTech stable via a
partnership with analytics platform D1g1t, Digital Currencies/FX
as well as the full takeover of Wealthbar 12%
Lending
in May 2020. National Bank followed suit 14%
by expanding their stake in competitor
Nest Wealth in July. The industry may see Risk
4%
consolidation and more strategic partnerships
in this space in the near future, especially Personal Financial Back Office
by institutions looking to rapidly build Management (PFM)
9%
12%
Wealth
capabilities, reduce cost to serve and improve Management
investor experiences. 9%
The average Canadian household debt-to-
income ratio now sits at over 170% as of Q3 Source: Accenture analysis of Crunchbase, Pitchbook,
2020.34 Even prior to the pandemic, some FinCadence, Maple FGS and CB Insights data.
10Canada is Benefitting from Fintech Brain Gain While on the whole Canadian hubs are
CBRE Research recently ranked Toronto fourth experiencing net brain gain, interviews with
in tech talent among 50 North American fintech executives as part of this report
cities, after the Bay Area, Washington, D.C. uncovered evidence that regrettable talent
and Seattle. Vancouver, Ottawa and Montreal losses to American “Big Tech” companies are a
all landed in the top twenty.36 In particular, popular concern, both at home and abroad.38
Toronto’s tech potential draws from its high
ratio of “brain gain”, or the difference between
a region’s number of technology jobs and the
number of those technologically-educated
there. By this measure, every Canadian city
evaluated except Ottawa has achieved net
brain gain over the last few years (see Figure
1.4).37
Figure 1.4: Chart represents top 15 North American cities by net gain. Ottawa has also been included to
provide a holistic Canadian perspective in-line with the other fintech hubs examined throughout this report.
55,000
50,000
45,000 42,817
40,000
35,000
30,000
25,000
20,000
15,507
Difference in the number 15,000
of technology degrees
granted vs. number of 10,000
technology jobs created 5,000 2,643 1,891
-
(5,000)
(10,000) (6,214)
Source: Figure 6, 2020 Scoring Tech Talent report, CBRE Research
Note: Chart represents top 15 North American cities by net gain, plus Ottawa
11US tech leaders continue to expand their to start abroad. Some Canadian fintech
Canadian presence, such as Amazon’s entrepreneurs are opting to first start their
aforementioned Toronto and Vancouver office businesses elsewhere, tapping into larger
expansions set to add 3500 jobs across both markets, robust ecosystems and high-profile
cities.39 While such expansion is a significant VC’s before returning home. Popular markets
positive contributor to the Canadian economy to scale include the US and UK, where some
and brain gain, it nonetheless increases local fintechs maintain a permanent presence while
competition for talent. Some reasons cited acquiring top-tier international clients.
by fintech executives for these regrettable
losses included generous signing bonuses, Even as more Canadian graduates choose to
secondary perks and brand prestige. work abroad, data compiled by BDC shows
Abroad, research by the Munk School of that 2018 represented a five-year high for
Global Affairs found that 25% of STEM skilled foreign workers as a percentage of
graduates from top Canadian universities Canada’s total population.43 Canada’s ratio
left Canada after graduation for work.40 The has slowly edged up to 0.28% since 2013,
rate is higher for certain professions, with representing a concentration nearly six times
nearly half of Canadian software engineering that of the US. This growing gap is attributable
graduates employed outside of the country to Canada’s progressive immigration policies
working for US companies such as Microsoft, relative to the United States, which have
Google and Facebook. Some growing fintechs been lauded as “the most elaborate and
attempting to bootstrap have cited this as a longest-standing skilled labour migration
cause for concern, particularly when Canada system in the OECD”.44 Former US President
has historically struggled to scale startups into Trump’s decision to ban green cards and
true multinational leaders despite investments suspend H-1B visas in mid-2020 may have
in public research and education.41 A widened this gap further, with several US tech
common reason for heading south is higher companies initially voicing concerns over the
compensation. Of the 50 cities analyzed in decision and Canada seizing the opportunity
CBRE’s 2020 Scoring Tech Talent report, the to court skilled foreign workers who may
five Canadian hubs examined came last for have suddenly found themselves stuck.45
average wage, partly owing to the stronger US Regardless, continuing this momentum
dollar.42 It’s worth noting, however, that when may now be especially important; Canadian
adjusted for talent “quality”, the same study immigration dropped off dramatically during
found Canadian cities such as Vancouver and pandemic travel restrictions, which have
Toronto host among the highest value tech continued to linger well beyond America’s
workers in North America. tumultuous 2020 election season. Novel
initiatives, such as virtual work permits,
A related theme identified during discussions have already been proposed as possible
with serial entrepreneurs and fintech workarounds until the situation stabilizes.46
executives for this report was the choice
12Canadian Fintechs Respond to the COVID-19 Pandemic
As the coronavirus swept across Canada, financial institutions were among those organizations
forced to respond, adapt and innovate. The crisis weighed on some startups; 24% of those
in Canada, including some fintechs, made the decision to lay off staff due to the virus’
effects as of May 2020.47 By June, some startups showed promising signs of rebounding by
rehiring workers, while others focused intently on retooling their products and services to
accommodate the new reality.48 With digital at their cores, these fintechs have been among
those well-positioned to support clients with the means to navigate the crisis (see Figure 1.5).
In the short-term, some of these offerings may remain some of the best suited for continued
physical distancing measures. Longer term, later adopters who have experimented with fintech
during the pandemic (both B2C and B2B) may indeed become regular users, further increasing
market share and driving growth.
Figure 1.5: Selection of Canadian fintechs who pivoted their offerings to support customers impacted by COVID-19.
Fintech Description COVID-related Challenges Opportunities and Solutions
Borrowell: Helps Customers urgently Accelerated the roll-out of a new tool called Boost
customers make better seeking information about which predicts upcoming bills to help manage cashflow,
decisions about credit. their credit standing, how plus covers gaps with an interest-free cash advance.
to manage debt and stay Also added a feature to ensure mortgage deferrals are
on top of finances. captured correctly on one’s credit report.49
Fundthrough: Online Many SMB’s suffered a The company committed to waiving up to C$10 million in
invoice factoring for major loss of business and fees for its SMB clients during the crisis.50
small and medium-sized struggled with managing
businesses (SMB’s). cashflow.
KOHO: Prepaid Visa with Customers, particularly Partnered with staffing platform Hyr to allow retail and
cashback, plus saving and gig workers, needed restaurant workers using KOHO to access C$100 of the
budgeting tools. quick access to cash and Canadian Emergency Response Benefit up to three days
emergency response early.51 KOHO later piloted this feature across all their
benefits. clients.
Boss Insights: Digitizes Business borrowers Boss Insights launched their CARES platform in May,
the commercial lending reported confusion and specifically tailored to streamline PPP applications and
process while enabling difficulty accessing the credit calculations for both lenders and borrowers, who
insights. US Paycheck Protection can connect their financial data directly to the platform
Program (PPP). via API’s.52
Nesto: Allows borrowers to Prospective home buyers While the Nesto platform itself reported a surge in use
quickly search and apply were challenged by during the pandemic, the company also offered users
for a mortgage online. the sudden lack of in- and their family free access to Dialogue, a telemedicine
branch services available app allowing virtual consultations with nurses and
or preferred to remain physicians.53
socially distant.
JUDI.AI: AI-driven loan FI’s were required to CEO Gord Baizley committed the startup to pivoting
adjudication platform for rapidly evaluate credit from their “short-term product roadmap” to help FI’s
financial institutions (FI’s). applications and distribute accelerate the dissemination of the Canada Emergency
millions in emergency Business Account.54
funds to SMB’s.
13II. Canadian Fintech Venture Capital
As of Q3 2020, year-to-date venture investment across all Canadian industries
totaled CAD $3.5 billion - down nearly 26% in dollar terms as compared to Q3
2019 YTD figures.55,56 Now against the backdrop of COVID-19, venture capitalists
are positioning their fintech portfolios for greater uncertainty in the short-term,
while remaining confident in their companies’ abilities to navigate the crisis and
emerge stronger. Despite a drop in fintech investment last year, in the context
of other industry trends discussed above, fintech talent is ostensibly well-
positioned to seize new opportunities and spur further investment growth in the
years ahead.
Figure 1.6: Total pre-IPO equity investment volume and dollar value, Canadian fintech companies,
2010 – 2020 ($USD M).
No. of deals
88
62
$728
57
54 52
$425
$419 $435
31
$309
19 20 $230
15 $170
12 $145 $148
$303 H1
$48
6 $82
$12 $28 $100 H1
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Accenture analysis of CB Insights data as of January 6, 2021.
Note: Investment value refers only to deals with amounts reported by CB Insights while deal volumes refers to all deals.
Yearly volume of equity financing (pre-IPO angel, incubator, growth equity, seed, series A+ and private equity stages only)
for fintech in Canada.
2020 Canadian Fintech Investment: While some evidence pointed to initial investor
The “COVID Effect” and Beyond interest in pandemic-resistant companies,
Discussions with leading Canadian VC this buzz ultimately failed to buoy overall
executives throughout the pandemic Canadian investment in 2020.57 Across all
revealed a confident, yet cautious, optimism industries including fintech, while Q1 2020
surrounding the fintech investment saw a marginal decline from the previous year,
environment and future ecosystem growth. the CVCA reported a surprising and significant
Accenture analysis revealed 2020 Canadian rebound for Q2 as economies began to
fintech investment was set to decline to a reopen across Canada; an overall record for
seven-year low, nearly 80% from 2019 levels, the quarter.58,59 As lockdowns dragged on,
in dollar terms (see Figure 1.6). Note this however, Q3 2020 witnessed a 63% drop in
presents an especially stark contrast in part dollar terms across all industries as compared
due to 2019’s record levels of investment and to Q3 2019.60,61 Accenture analysis of recent
the notable number of “mega-deals” (CAD fintech-specific deals revealed that the
$50m+) which took place that year. industry may have lagged even the broader Q2
14rebound, with approximately USD $100m in It was noted during discussions with leading
equity venture capital invested as of H1 2020 investors that while some deals were
compared to USD $301m in the first half of paused and funds temporarily retrenched
2019 (see Figure 1.6).62 to bolster their portfolio companies during
COVID, investment philosophies have not
Understandably, the valuations and exits of fundamentally changed since the crisis began.
some major Canadian fintechs have been, However, attention was temporarily diverted
at least temporarily, upended.63 However, to a few key areas. These included ensuring
investor and government sentiment appears safe remote working conditions for VC teams,
to be favouring a scenario where properly helping portfolio companies secure adequate
capitalized high-tech companies well- runway, and executing cash conservation
positioned before the crisis will emerge efforts or cost rationalization activities. The
stronger once the dust settles.64 Calgary-based initial inability to conduct thorough, in-person
fintech Symend’s C$73 million Series B round due diligence and B2B sales in pre-COVID
was the seventh largest overall Canadian VC fashion was also cited as a common reason for
deal in 2020. Meanwhile, payments processor slowed deal and sales cycle times.
Nuvei’s September IPO closed at USD $833
million, proving to be the largest ever for a
technology company on the TSX at the time.65
Figure 1.7: A selection of notable 2020 Canadian fintech
For VC-backed companies struggling during equity deals (CAD $10 million+).
the fallout, BDC Capital was one of the first
to roll out support in the form of its Bridge
Financing Program, which aimed to support C$73m (Series B)
eligible startups impacted by COVID-19 in the
form of convertible notes. As of mid-2020,
BDC had completed 23 Bridge Financing C$40 - 50m (Series B)
Program deals worth C$45 million, from
a total budget of C$300 million.66 Export C$25m (Series A)
Development Canada (EDC) followed with a
similar investment matching program, with
five deals closed worth C$15 million as of early C$20m (Series B)
June.67 Although government approaches
have varied at the provincial level, economic
policymakers have broadly remained open C$11.5m (Series A)
and optimistic about technology investment
playing a key role in Canada’s recovery. C$11m (Series A)
Quebec Minister of Economy and Innovation
Pierre Fitzgibbon revealed the province’s
plan to make significant direct equity
investments in local firms, along with Ontario Source: Accenture analysis of Crunchbase data and publicly available
deal information.
Minister of Economic Development Vic Note: Certain deals have been excluded due to undisclosed terms,
Fedeli’s consideration of the Ontario Capital ownership structure or deal classification. NAventures did not disclose
the exact value of their July 2020 investment in Nest Wealth.
Growth Corporation’s investment matching
proposal.68,69
15As discussed above in the Canadian Fintech
“The pandemic Overview, early-stage funding availability in
Canada may pose ongoing challenges for
nascent fintech startups. While the proportion
complicated
of publicly disclosed early versus late-stage
VC deals has edged up slightly over the
last five years, 2020 early-stage funding
declined considerably in dollar terms along
in-person due with broader investment activity (see Figure
1.8).70 The average size of angle, seed and
other early-stage deals also decreased. For
diligence and this reason, it will be important to observe
how and when these deals recover to pre-
pandemic levels as one possible indicator of
B2B sales.”
future ecosystem recovery and strength.
Despite several funds focused on early-
stage fintech emerging in recent years
(see Figure 1.9), recent discussions with
Canadian VC executives revealed that that
newer companies will increasingly need to
Figure 1.8: Pre-IPO Canadian fintech equity financing distribution by round, 2015 – 2020.
Number of Deals Investment Dollars ($USD M)
728
88
No. of deals
12%
11% 62
57
54 52 435
11% 419 23%
8%
6%
9% 6% 12% 13% 309 10% 9% 17%
31 12%
17% 18% 230
12% 41%
45%
6% 69% 34%
33%
73% 27%
32% 65% 63% 25% 17% 148
65% 29%
9% 44% 46%
45% 25% 34% 11%
11% 42%
7% 8% 5% 6% 4% 12%
2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020
Angel, Seed & Other Early Stage Series A Series B Series C Series D Series E Private Equity, Growth Equity & Mezzanine
Source: Accenture analysis of CB Insights data as of January 6, 2021.
Note: Investment value refers only to deals with amounts reported by CB Insights while deal volumes refers to all deals.Yearly volume of equity
financing (pre-IPO angel, incubator, growth equity, seed, series A+ and private equity) for fintech in Canada.
16demonstrate a high degree of differentiation Canadian Fintech Hubs and Leading VC’s Are
to generate interest.71 This could include Growing From Coast-to-Coast
factors such as managerial experience, New venture capital firms and record-sized
technical talent and intellectual property, funds also emerged in 2019/2020, positioning
among others. This competition for early-stage Canadian fintech for further growth in an
funding may be one reason why the number already burgeoning market.
of fintechs being founded is on the decline,
although the subtleties of this trend are Toronto is now home to Radical Ventures,
discussed in the section above. Regardless, a C$471m fund with present investments
combined with significant pre-pandemic in Sensibill and Drop, aimed at supporting
cross-border investor interest in the Canadian startups with exponential disruptive potential.
market (see Figure 1.12), continued record BDC Capital spinoff Framework Venture
valuations and exits for later-stage Canadian Partners also closed their first C$100m fund
fintechs remain a distinct possibility beyond in early 2019, with offices in both Vancouver
this unprecedented year. As the Canadian and Toronto and investments in the likes of
fintech ecosystem enters a possible period of TouchBistro and Wave. On the corporate side,
“refinement”, young companies may find the Montreal-based Desjardins Capital announced
near-term environment to be a challenging the launch of a C$45m fintech-specific fund
one, notwithstanding the lingering effects of to better ground the institution, and its
the COVID-19 crisis. members, in the digital ecosystem.72
Figure 1.9: A selection of the most active non-corporate venture capital firms across Canada with disclosed
investments in fintech. Those with notable focus on fintech in their portfolios are highlighted.
Atlantic Canada
Greater Vancouver
Greater Montreal
Greater Toronto
Ottawa
Source: Accenture analysis of Crunchbase investment data and publicly disclosed venture capital portfolios.
Note: Non-exhaustive.
17At least six existing Canadian VC’s with fintech investments also substantially grew funds
or closed new ones in the last 18 months. Growing interest in the nation’s market was also
reinforced in 2020 as Canada gained its first private venture fund in excess of C$1 billion (see
Figure 1.10).73
Figure 1.10: Notable fund growth or closure in the past 18 months by existing Canadian VC’s with disclosed fintech
investments.
Fund grows to C$85m after addition of iA
October 2019 Financial and BDC Capital as LP’s.
Closed second fintech-focused fund
December 2019 with commitments totaling C$427m.
Growth Fund V is the first private venture
February 2020 fund in Canada to close over C$1 billion.
Announced a C$1 billion fund with a
April 2020
planned focus on global investments.
Closed their third fintech-focused fund,
April 2020 totaling C$36 million in commitments.
Closed an innovative $60 million fund
August 2020 as a registered exempt market dealer.
Source: Accenture analysis of Crunchbase investment data and publicly disclosed venture capital portfolios.
“In 2020, Canada
gained its first
private venture
fund in excess of
C$1 billion.”
18The Greater Toronto Area continued to lead At a global level, Canada continues to be a
other Canadian hubs in terms of 2020 fintech beacon of academic and research strength,
deal and dollar volume (see Figure 1.11).74 as well as technical and engineering talent.
Despite an impressive 128% cumulative CAGR Together, various Canadian cities respectively
since 2010, other Canadian hubs such as boast the highest concentration of AI startups
Montreal and Calgary are well on their way. in the world, and have been the launch pad for
Several fintech-focused VC firms now call respected institutions and programs such as
Montreal home, while interest continues to the Vector Institute, Element AI, Mila and the
mount in Calgary’s talented emerging tech Alberta Machine Intelligence Institute.75 Cross-
ecosystem. Sustained investment in these border investors who have taken notice have
hubs will be one important factor among come to be an important source of capital for
many for the steady expansion of Canada’s Canadian tech startups, including fintechs.
reputation as a diversified fintech incubator.
See the Overview of Canadian Hubs Poised to
Grow section above for more details.
Figure 1.11: Cumulative fintech financing CAGR % vs. fintech deal volume for major Canadian hubs, 2010 – 2020.
Bubble size is indicative of total relative deal value.
220
200 Montreal
180
160
140
120 Other Cities
100
Greater Toronto
80
Calgary
60
Vancouver
40
Ottawa Total Canada
20
0
0 20 40 60 80 100 120 140 160 180 200 220 240 260 280 300 320 340 360 380 400 420 440
Source: Accenture analysis of CB Insights data as of January 6, 2021.
Note 1: Investment value refers only to deals with amounts reported by CB Insights while deal volumes refers to all deals. Yearly volume of equity
financing (pre-IPO angel, incubator, growth equity, seed, series A+ and private equity) for fintech in Canada.
Note 2: Greater Toronto refers to the Greater Golden Horseshoe area. Vancouver includes the suburbs of Richmond and Surrey, as well as Victoria.
Note 3: Other Cities in Canada represent CAGR from 2014 – 2020 and include deals in Charlottetown, Edmonton, Halifax, Miramichi, Moncton,
Quebec, Saskatoon, Sydney, Windsor and Winnipeg. See Appendix A for additional geographical assumptions
19As investors responded to 2020’s recession a catalyst for certain benevolent ecosystem
and adjusted to the new normal of closing forces, such as increased global attention
deals remotely, US and other cross-border and talent attraction. This is particularly
VC investment also declined (see Figure true of closing so-called Canadian “mega-
1.12 below).76 While Canadian fintech deals deals”, such as Verafin’s record-breaking 2019
including cross-border venture capital investment and eventual multi-billion-dollar
interest hit a ten-year high in 2019, these deals sale to Nasdaq in November 2020, which
declined in-line with the broader industry involved cross-border interests throughout.
last year, falling slightly more at 83% year- Larger Canadian deals are a likely place for
over-year. American investors have remained cross-border investors to start on the path to
the most prominent in deals including cross- restoring previous levels of Canadian fintech
border interests. The US participated in over investment, especially given similar global
95% of 2020’s cross-border deals and had the trends already unfolding elsewhere.79
largest dollar contribution of foreign investors
into Canadian fintech.77 Putting aside any chronic impacts of the
COVID-19 crisis, longer-term growth trends in
Assuming the global economy stabilizes Canada’s fintech ecosystem may be shaped
over the next few years, Canadian venture in part by the country’s willingness and ability
capital executives surveyed for this report felt to take on a greater number of calculated
unconcerned by increasing foreign investor bets. Such activity could be focused on both
interest in Canada. Several differentiators promising startups who can achieve global
were cited, such as domestic players’ deep commercialization and scale, as well as on the
ecosystem roots, well-rounded understanding critical underlying standards necessary for
of the market and regulatory environment, and the further propagation of innovative, highly
integration with value-added partners such productive solutions in-market. Factors such
as academia and startup accelerators.78 On as modern approaches to interoperability
the contrary, some venture capitalists looked might be one possible step among others
to the potential synergies made possible on the path to unleashing further Canadian
by investing alongside others with valuable fintech investment growth, from both
expertise on offer for portfolio companies. domestic and cross-border sources.
Others saw healthy competition for deals as
Figure 1.12: Total Canadian fintech cross-border investment activity (deal and dollar volume), 2010 –2020 ($USD
M). While most cross-border investment into Canadian fintechs continues to include US-based interests, activity
declined during the pandemic.
55
No. of deals
42
38
US Investor Participation
34
32 $657
Non-US Investor Participation $79
$359
15 15
$3 $311
$19 $578
12
10
8 $150 $157
$135 $133 $356
5 $4 $7 $7 $291 $111
$79 $13
$5
$8 $27 $131 $143 $151
$120 $106
$79
$25
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Accenture Research analysis on CB Insights data.
Note: For targets headquartered in Canada. Non-US participation includes investors headquartered in South and Central America, Europe, Asia,
Africa, Middle East, and Oceania. Deal types include pre-IPO angel, incubator, growth equity, seed, series A+ and private equity stages only. Includes
deals with undisclosed investors.
20III. Canadian Financial Institution Ecosystem
As Canadians familiarize themselves with new banking brands and digital finan-
cial services products, players are taking different approaches to standing out
from the crowd. Two questions emerge: what might the future of technology
partnerships look like in the Canadian market, and what are the implications for
how banks serve customers today versus how they might serve them tomorrow?
Neobanking in Canada billion by 2027 and CAGR of 48%.80 The
To thrive in the competitive financial services tailwinds of changing customer expectations
marketplace, financial institutions (FI) have and demographics, as well as regulatory
evolved so-called “neobanking” strategies shifts supporting greater interoperability,
and partnerships to help address gaps have fueled the growth of neobanks. Since
and complement core product offerings. Scotiabank’s refreshed launch of ING Direct’s
Neobanks are characterized as those without former Canadian business as Tangerine in
physical branches that seek to meet the needs 2012, the landscape has become increasingly
of customers predominantly through digital crowded with a variety of digital-only banks.
channels. We examine these neobanks below by
categorizing them as either Canadian Banking
Globally, neobanks have quickly started to Challengers, Canadian Digital Attackers or
capture market share from the competition New Entrants.
with an expected market size of USD $450
Figure 1.13: A selection of neobanks with existing or planned Canadian operations.
Canadian Banking Challengers Canadian Digital Attackers New Entrants
Source: Accenture analysis of publicly available data sources.
*Note 1: As of December 2020, neither Shopify Balance nor Wave Money had publicly available launch dates for the Canadian market.
**Note 2: NorthOne has relocated its headquarters from Toronto to New York, although it maintains a presence in both markets.
21Canadian Banking Challengers fintechs in those hubs such as Monzo, N26
The Canadian financial services industry and Revolut. Revolut had begun to test their
is seeing a rise in digital-only options from platform in Canada towards the end of 2019,
incumbent institutions. RBC has recently although the pandemic upended some of
remarked on the bank’s interest in launching a these challenger banks’ plans and created
digital only bank in the US, which would make significant uncertainty given profitability
it the first Canadian bank to do so.81 Manulife challenges.84,85 Even prior to COVID, New
Bank has also taken on a digital profile with the Entrant operations were often confined to a
further development of their mobile and web limited number of products and services, such
platforms. And in September 2020, Loblaw as prepaid cards and payments.
announced the launch of the PC Money
Account, an effort to rebuild the grocer’s Entering, Competing and Partnering in the
deposit-taking business with a keen focus on Canadian Financial Services Marketplace
loyalty and rewards.82 As possible regulatory changes portend the
evolution of market dynamics between various
With 5.8 million Canadians using a credit players, market participants are leveraging
union for their day-to-day banking needs, different approaches to take part in the action.
these community institutions have also started
to launch digital offerings.83 Figure 1.13 details While incumbent-backed Banking Challengers
some of the digital subsidiaries of credit have emerged to answer the call of changing
unions such as Meridian and Alterna targeting customer expectations, Digital Attackers -
provincial customer bases. Competition may such as Wealthsimple and Neo - generally
heat up among Canadian financial institutions rely on insured Canadian partner institutions
as they double-down on the digital-only to facilitate parts of their business. In
customer as a key strategic initiative. Wealthsimple’s case, Vancouver-based
Peoples Trust backs the fintech’s deposits.
Canadian Digital Attackers New Entrants offering prepaid credit cards
The Canadian Digital Attackers are a group and transfer services to Canadians, on
of homegrown companies whose beginnings the other hand, are exempt from some of
were independent of larger, charted banking these regulations as long as they remain
institutions. Some savvy customers have come non-deposit takers. While this strategy has
to expect the familiar experiences provided by been an important part of ensuring speed
tech giants such as Apple, Netflix and Amazon to market, it may ultimately place limits on
from their bank as well. In turn, each of these future product and service differentiation
fintechs have a taken a unique approach to among competitors. One example of
addressing this desire. On the retail side, lowering this barrier to entry is the UK and
KOHO, Mogo, Neo, Wealthsimple, Stack and EU’s licensing program for fintechs wishing
Wingocard have sought to bring a simplified to hold e-deposits and issue cards, so-called
product suite to clients wrapped in a modern Electronic Money Institutions (EMI). On the
user experience. On the small-medium other end of the spectrum some US Digital
business front, Shopify and Wave recently Attackers have opted to acquire existing
announced business banking products for charted banks as a path to market, such as
their existing e-commerce and accounting Jiko, who recently became the first fintech to
customers, respectively. complete a takeover of a national US bank.86
Where willing and able, New Entrants are also
New Entrants directly pursuing banking licenses; Revolut
Jurisdictions such as the UK, EU and Australia recently announced their intention to acquire
have begun to embrace policies that support a state banking charter in California.87 It
greater openness and increased competition remains to be see how, or if, similar trends may
in financial services. The North American play out in the Canadian marketplace.
market has thus become a target for the
more mature and well-funded among retail
22On the business banking side (covered in their capabilities and incubate ideas. In lieu
Part 2: The Digital Race to Serve Small and of an outright acquisition, established players
Medium-sized Businesses section below), are now also opting to refer clients to formal
Digital Attackers such as Shopify and Wave partners offering more suitable services or
have emerged to simultaneously converge licensing white-labelled technology to elevate
on new products. Already mainstays of their the customer experience. For example,
expansive commercial customer bases, Toronto-based Sensibill distributes its receipt
these new entrants are seeking to disrupt management solution through several of
traditional small-medium business (SMB) Canada’s major FI’s, as well as a number of
banking and advisory by providing value- large American institutions.
added current accounts, cards and rewards
programs. Both companies have made plans Financial Services Partnership Trends in
to first pilot and launch these services in the Canada
US. Shopify Balance will be powered by both At the 2020 Scotiabank Financial Summit,
Stripe’s Treasury product and Evolve Bancorp, several Canadian bank executives cited
respectively.88 strategic fintech partnerships and ongoing
technology transformation work as sources
Finally, many successful Canadian financial of strength during, and beyond, the
products are the result of esteemed COVID-19 pandemic.89 Below, we discuss a
partnerships between FI’s and technology non-exhaustive selection of these publicly-
companies. As the lines of competition disclosed partnerships, as well as a number of
continue to blur, larger institutions are ways the partnership ecosystem is evolving in
increasingly looking strategically to fintechs Canada (see Figure 1.14).
and other technology upstarts to augment
Figure 1.14: A selection of notable partnerships between Canadian financial institutions and fintech
ecosystem participants.
BMO will be one of eight US RBC, Red Hat and NVIDIA
launch partners for Google jointly developed an AI
Pay’s new mobile chequing private cloud platform to
account, Google Plex. rapidly build, test and deploy
apps.
CIBC’s SmartBanking for Scotiabank partnered with
Business platform leverages MaRS to broaden the Bank's
two-way integration with Xero, innovation ecosystem while
Ceridian and Intuit to simplify supporting AI development
the SMB banking experience. and adoption.
Manulife Bank’s virtual Signed a data-access
assistant is powered by agreement, allowing TD
Kasisto’s KAI to help customers to securely use
Canadians better manage PFM tools supported by
their finances. Finicity.
NBC deepened their Partnered to provide group
partnership with Nest Wealth benefits members with free
Source: Accenture
in 2020 to accelerate the access to telemedicine analysis of publicly
modernization of the Bank’s capabilities during COVID. available data sources.
platforms.
23Accenture examined nearly 100 publicly when asked about Royal Bank’s displacement
disclosed partnerships from the past five years as the most valuable Canadian company by
spanning over 20 Canadian banks, insurers Shopify in 2020, calling it a defense against
and credit unions to identify key collaboration “potential disruptive plays” in the future.90
trends. In combination with insights drawn
from discussions with industry executives, As banks move increasingly towards becoming
several key themes emerged. technology-first companies, one of the most
popular types of FI partnerships today are
Firstly, fintechs are increasingly “enterprise- those with data and insights companies. Firms
ready” as compared to even just a few such as Flybits, MX and Flinks are helping
years ago. Given major Canadian banks’ banks make sense of complex data and the
market share and overall consumer trust associated plumbing. Consumer-facing
in the financial system, the country’s B2C brands such as Dialogue Health are also giving
challenger banks are still relatively modest in FI’s alternative, value-added ways to engage
size as compared to their US and European with their clients while capturing valuable
counterparts. This may be one reason why customer referrals or analytics.
both founders and investors have given a
slight edge to those startups with business Looking Ahead: Ecosystem Banking in Canada
clients in recent years. B2B-focused Verafin As technology-first solutions proliferate within
and Nuvei have respectively broken records Canadian FI’s, specialized players such as
for the largest Canadian VC deal and largest Shopify are converging into financial services.
technology IPO on the TSX in the last year, for Looking ahead, Canada may be primed for
example. increased adoption of so-called ecosystem
banking. This strategy, one slowly being
Second, several companies, such as Kasisto adopted in different ways by global banks as
and Sensibill, are making inroads by spanning it is predicated on their strength as trusted
multiple financial institutions with white- brands, is based on developing a suite of
labelled offerings, often unbeknownst to end products and services that complement core
users. More formal consortiums, such as the offerings in many ways.
one being built by SecureKey to authenticate
users across institutions, are going beyond Singapore’s DBS Bank was an early purveyor
customer experience transformation. Such of one of these ecosystems. Since 2018, DBS
partnerships and consortiums are proving to has launched four different marketplaces that
be a successful means to piloting solutions introduce third-party technology, products
to ambitious technology challenges, such and services designed to complement DBS’
as digital identity, without building the core business.91 Importantly, customers
technology from scratch. of these marketplaces do not need to be
customers of the bank to use the various
Finally, fit-for-purpose partnerships are being services, which include:
forged to fill strategic capability gaps. Across
the board, FI’s are leveraging both fintechs • Property – Plan, search, buy and sell property
and industry agnostic technology companies • Travel – Plan, search and book travel, hotels,
to access new markets, provide value-added and tours
services and elevate the customer experience • Auto – Search, buy and sell vehicles
for Canadians. In fact, of the partnerships • Electricity – Compare, switch and save on
examined by Accenture, about half originated energy plans
with technology companies not exclusively
serving the financial services industry. RBC To enable each of these marketplaces DBS
Ventures, one of Royal Bank’s strategies to has partnered with a shortlist of third-party
go “beyond banking”, is leveraging strategic services, with the bank offering lines of
investments to tap into this trend. CEO Dave credit, mortgages, insurance, and payment
McKay recently referenced the ventures arm processing around them.
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