Although the percentage of Canadians using new financial technology has doubled over the past 18 months, Canada lags much of the rest of the world in adopting services offered by online providers.
Startup companies – commonly referred to as "fintech" providers – are offering clients financial-service products that are generally more cost-effective and easier to access than traditional bank offerings, such as online loan lenders, robo-advisers and digital-payment providers.
In Canada, only 18 per cent of digitally active Canadians have used two or more fintech services in the past six months, compared with 33 per cent globally, according to Ernst & Young LLP's FinTech Adoption index. And while the Canadian rate has almost doubled from 8 per cent in 2015, Canada remains in the bottom of world rankings along with Japan and Belgium.
China has the highest adoption rate at 69 per cent, while India and Britain are close behind with 52 per cent and 42 per cent, respectively.
But there's a good reason for the slow uptake of fintech within the Canadian market, says Ron Stokes, EY Canada's fintech leader.
"Canada went through a very different experience after the financial crisis in 2008," Mr. Stokes said in an interview with The Globe and Mail. "In other countries, consumers – due to the financial crisis – were not happy with their traditional financial players, and therefore an opportunity opened up for these fintech companies to offer products that satisfied the consumers at that point and time. Whereas in Canada, the Canadian banks weathered the financial crisis without a lack of consumer confidence."
Lack of awareness is cited as the number one reason Canadians haven't been using fintech businesses. But that is expected to change, Mr. Stokes said. Twenty-two per cent of survey respondents reported they had not heard of any fintech company – significantly fewer people than the 49 per cent from two years ago.
"Due to the strength of the banking sector in Canada, partnerships are growing between banks and fintechs to boost their digital capabilities," says Mr. Stokes. "Banks are now looking for faster and easier ways to boost their digital capabilities. As awareness increases, so will the adoption rates, which we expect to hit the global average in the foreseeable future."
Mr. Stokes says the rise of adoption rates will be driven primarily by money transfers and payments fintechs – such as smart phone payments at checkouts – and insurance.
But while Canadians banks have been slower to embrace fintech partners, consumer expectations in other fields have quickly evolved to include faster, online offerings, such as online-cable provider Netflix and ride-hailing application Uber. As a result, the banks are now enhancing the resources they dedicate to fintech.
Last month, Royal Bank of Canada acquired Wiser Investments, a Toronto-based financial-technology firm, and launched an in-house innovation lab with its asset management division, RBC Global Asset Management (RBC GAM). The lab will partner closely with RBC experts in digital technology, analytics and machine learning as it develops tools that will help enhance the experience and outcomes of investors and advisers.
Among the other big banks, Canadian Imperial Bank of Commerce has partnered up with Thinking Capital Inc. for online small-business loans, Bank of Nova Scotia has struck a similar deal with Kabbage Inc. and Toronto-Dominion Bank turned to Movencorp Inc. for its MySpend budgeting app. As well, a number of credit unions have turned to Grow Financial Inc. for online lending services.
Financial behemoth Power Corp. of Canada has focused heavily on Canada's fintech space – recently announcing it has set aside $250-million to spend on fintech companies. Before that announcement, it had already invested $100-million in roboadviser Wealthsimple, as well as other fintech providers such as mobile application Koho, online lender Borrowell and business lender Clearbanc. and heath-care benefits provider League.
With files from David Berman