Canadian adoption of fintech products set to triple in a year: report

TORONTO ? Canadian adoption rates of financial services products developed by non-bank online firms, which operate underneath the umbrella of fintech, could triple each year, according to a study Thursday from EY.

The consulting firm framed the outcomes like a heads-up to banks, whose business is the main target of disruptive fintech firms, but the expected increase is due, at least in part, to low awareness which has kept adoption rates low to this point.

“Only 8.2 per cent of digitally active consumers in Canada used a minimum of two FinTech products in the last six months,” said Gregory Smith, a partner in EY’s financial services advisory practice. “This puts Canada’s behind five other countries surveyed, including the U.S. and the U.K.”

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He noted the arrival in fintech is comparatively recent in Canada, and said bankers in this country should not assume they will avoid the challenge from their newer rivals.

“As the trend continues to catch on, traditional financial services companies must be a lot more aggressive and creative to keep their customers,” Smith said. “A big piece of the customer pie is going to be on the line here.”

Last year, a report around the global banking industry from McKinsey and Co. said losses to fintech attackers have been “little more than a rounding error.” But the report went on to predict that 20 to 60 per cent of bank profits in five business lines is going to be in danger by 2025, with consumer finance – including mortgages and retail payments – the most vulnerable.

Even if only a small portion of these firms is captured through the fintechs, the McKinsey report said banks stand to lose considerable amounts of money because of margin pressure from the prices provided by their sleek new competitors.

Market observers have warned that banks will also be vulnerable to being separated using their customers and the valuable data they offer, which makes it more difficult to sell them a variety of financial services.



So far, Canadian banks are answering the fintech threat by developing their very own technology hubs and taking tentative steps to get together with similar fintech firms challenging their traditional businesses.

Canadian Imperial Bank of Commerce, for example, entered a referral partnership with small business lender Thinking Capital late this past year.

Sean O’Connor, vice-president of partnerships at Grow, an online fintech lender formerly known as Grouplend, thinks other banks follows suit this year, along with credit unions courting a younger demographic.

“In some cases, this may mean cannibalizing areas of their core businesses in order to keep in the technology arms race,” he said.

O’Connor acknowledged that Canadian fintech is much more “evolutionary than revolutionary” at this stage, without any new player even approaching the level of disruption a company like Uber causes in the transportation-for-hire business.

He said fintech players that want to succeed long term, particularly in the Canadian market covered with a handful of major banks, will need to offer more than just a rather cheaper, faster, and more convenient financial product or service.

“In 2016, innovation around the margin will no longer cut it of these newcomers,’ O’Connor said. “To compete in the market with large and well-heeled banks, or attractive from the partnership perspective, truly game changing products will be have to delivered.”

Getting discovered may also be key.

EY’s report says more than half from the “digitally active” Canadians who didn’t use two or more fintech products within the last 6 months simply weren’t aware these products existed.

The consulting firm also found some proof of hesitation since the new technology-driven products and services aren’t trusted C but not around expected. Approximately 10 % of those surveyed gave that like a reason not to use fintech services or products.

“This finding shakes up our understanding of how far Canadians’ trust goes, and is certainly something for traditional players to make note of,” said Smith.

bshecter@nationalpost.com

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