Growing the GTA’s Fintech Ecosystem

Strengthening the fintech ecosystem in the Toronto region must be an imperative for the entire Canadian financial services sector and governments, in order to maintain and grow our international market position as a financial services hub.

This is the key finding of a 2017 report from the Toronto Financial Services Alliance (TFSA), researched and written by Accenture (NYSE: ACN) and McMillan LLP. Titled “Seizing the Opportunity: Building the Toronto Region into a Global Fintech Leader,” the report is based on primary and secondary research, including a survey and interviews with executives in the government, financial services, and fintech sectors.

Fintech is about leveraging technology—especially new and emerging technology, such as artificial intelligence and big data—to find more effective ways of doing business, and more efficient ways of serving customers in financial services. Practically speaking, this has led to the emergence of numerous start-up companies that are striving to enter an industry that has long been dominated by banks, insurance companies, and other financial firms.

How this ultimately plays out is crucially important because the financial services industry is a key driver of economic growth in Canada—and the nature of that industry is in the process of being transformed by upstart companies and by changing customer expectations.

The same scenario is unfolding in countries around the globe. Here in Ontario, the vast majority of companies active in the fintech space operate in the Toronto/Kitchener-Waterloo corridor.

The report sets out findings on the current state of the fintech ecosystem in this region, and makes recommendations on how to position us on the global playing field. It found that the Toronto/Kitchener-Waterloo corridor benefits from a strong core of financial institutions, top-tier research facilities at local academic institutions, a strong talent base, and relatively low business operating costs compared with other global fintech ecosystems.

“Companies in the United Kingdom and Singapore benefit from a clearly mandated office dedicated to supporting and growing the fintech ecosystem.”

The report was commissioned by the TFSA to ensure our region addresses the potential for a thriving fintech presence within our Canadian financial services industry. As the lead report writer, Accenture is active in helping its global clients to understand and navigate this emerging ecosystem in all regions, including through its Accenture Fintech Innovation Labs in London, New York, Hong Kong, and Dublin, where it brings together early-stage financial technology companies and some of the world’s leading financial institutions.

The report also highlights the strategic investments flowing into three emerging technologies, thanks to corporate and government support. The Ontario government has played a pivotal role in the launch of The Blockchain Research Institute as well as The Vector Institute, which was established with $150 million in funding. And the federal government committed $76 million to the University of Waterloo’s Transformative Quantum Technologies program. These investments are important not only for the work and research they enable, but also for the signal they send about our region’s specific priorities and potential areas of expertise.

But other regions are also doing many of these things, and more. Around the world, other established and emerging fintech hubs are moving aggressively to seize a global leadership position.

Companies in the United Kingdom and Singapore benefit from a clearly mandated office dedicated to supporting and growing the fintech ecosystem. New York has an especially attractive investment climate. Silicon Valley has an unparalleled advantage in fostering generations of entrepreneurs and investors.

The recent report shows that the Toronto region ranks among the middle of the pack globally. Three regions—Silicon Valley, New York, and London—have a significant lead.

It is imperative that Toronto create the conditions that will drive our ultimate success in attaining a lead position. To do this, we must develop a clear, consistently implemented, policy-driven fintech strategy that focuses on fostering innovation among all participants in the ecosystem.

The Canadian financial system is touted as one of the strongest in the world. Fintech can and is already changing the game. It’s time now to create the conditions for our fintechs to grow and thrive and to ensure that our financial industry can also successfully adapt and grow.

The report provides a range of recommendations to break us out of the pack and help us close the gap in this race:

  • Collaboration: Closer and more frequent engagement among fintech start-ups, well-established financial institutions, and the venture-capital community. Our research discovered that many local fintechs find it difficult to navigate the complex procurement, legal, and security protocols of traditional financial companies. There needs to be greater integration with investors—using them as a kind of bridge between these two worlds. Experienced venture-capital firms are well-suited to establish connections with large financial institutions—and help smooth the early stages of a potential relationship.
  • Capital: Our report found that over the past five years, about 140 local fintech firms have raised more than $500 million in equity financings. That’s in addition to financings that have been done privately. Fintechs typically require large capital injections due to the industry’s complexity and the time it takes to traverse regulatory demands. And right now, we aren’t attracting enough of the sophisticated seed-level funders that can help guide founders through the early stages of their companies’ development. We want our fintech companies to be founded and developed here—to grow here and to cast a net out into the world from a base in Ontario. We therefore need to ensure that our tax policy and other rules encourage investment in our emerging fintech firms.
  • Regulation: A flexible and responsive regulatory environment is essential for fintechs to thrive and for financial companies to innovate. But right now, navigating the regulatory maze can be expensive and time consuming—and can act as a significant barrier to entry. For example, some fintech centres around the world have adopted what’s known as a “regulatory sandbox,” in which an emerging fintech company can test its business model—or a financial company can test a new product—for a limited period of time without having to run the full gauntlet of regulations.
  • Research: Encourage the commercialization of research on financial services to further establish the region as a global leader. In its recent budget, the federal government said it would invest close to $1 billion in what it describes as “innovation superclusters” across a number of industries. Now, greater support needs to be directed to the fintech space.
  • Talent: Creation of opportunities and conditions that will attract top talent who have experience growing and scaling fintech companies. We must create for recent graduates the kind of opportunities that will convince our very best to stay here in Canada—whether it’s working with a fintech or with an established financial institution, helping them to adapt and innovate.
  • Awareness: Raising of the region’s profile on the global stage as a fintech hub will show that we understand what it takes to compete globally in a highly competitive—and increasingly important—sector of the economy.

About the Author

Robert Vokes is Managing Director, Financial Services (Canada), Accenture. He can be reached at Robert.vokes@accenture.com.

About the Author

Janet Ecker is President of Kilwaughter Consulting and former President & CEO of the Toronto Financial Services Alliance.

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