Michael R. King is Co-Director, Scotiabank Digital Banking Lab at Ivey Business School, Western University
Most commentators agree that Canada has many of the elements required to support a vibrant financial technology sector, including a stable and secure financial system, a high concentration of financial institutions, access to a vast pool of talented employees and expertise in the underlying ABCDs: artificial intelligence, blockchain, cryptography and data science.
But a key flaw is the absence of a clearly defined fintech strategy championed by the federal government.
Britain, Australia and Hong Kong have released national strategies for this key sector over the past 18 months, seeking to create jobs nationally and export globally. But Canada does not have a national strategy. Instead, we are seeing regional fragmentation, with separate reports commissioned by Toronto, Montreal and Vancouver arguing that each should be the hub of fintech in Canada. Seems familiar? We only have to look at the Canadian provincial securities regulatory system to see where this takes us.
Although each of Canada’s regions has obvious strengths, isn’t this approach missing the essentials? Why are we competing internally, rather than coordinating nationally and globally to dominate the emerging FinTech industry? The answer is a lack of federal leadership.
In Britain, Australia and Hong Kong, the equivalent of the finance minister took matters into their own hands, creating a fintech advisory board with private sector expertise, consulting key stakeholders, coordinating different levels of government and publishing a national strategy. As Australia’s Treasurer said in the 2016 Backing Australian FinTech report: “I want to help create an environment for Australia’s FinTech sector where it can be both internationally competitive and play a role. central to the positive transformation of our economy. Remember that Australia has the same federal system as Canada, with a smaller population and a financial sector dominated by a few large incumbents.
In a 2014 speech, then British Chancellor of the Exchequer George Osborne said: “The key to the government’s long-term economic plan is to consolidate Britain’s position as a center. of global finance. the financial sector continues to meet the diverse needs of businesses and consumers at home and around the world, and to create the jobs and growth we all want to see in the future. Britain is very aware of the risk of losing its dominant financial sector following the Brexit vote. In a recent speech, Bank of England Governor Mark Carney backed fintech, noting it would democratize financial services and contribute to a more resilient financial system.
While Canada often looks south for inspiration, in this case the United States is showing us what not to do. The US fintech sector is held back by regional competition between Silicon Valley and New York and regulatory uncertainty. A 2016 KPMG report classified California and New York as distinct fintech regions alongside Australia, Germany, Hong Kong, Singapore, and Great Britain (Canada did not on the list). One key gap: Fintechs are subject to supervision at the state level and separately by the Department of Business Oversight in California and the Department of Financial Services in New York. Regional competition and regulatory uncertainty may have contributed to the 50% drop in FinTech investment last year, with KPMG reporting just $ 12.8 billion (US) invested in 2016 compared to 27 , $ 0 billion in 2015. While Canada reversed this trend with a record $ 138 million (Canadian) in fintech investments last year, Canada’s investments are measured in millions, not billions.
Finance Minister Bill Morneau’s Budget 2017, Building a Strong Middle Class, goes in the right direction with a focus on innovation, networks and clusters, and the digital economy. The budget emphasizes that Canada’s financial system should work for all Canadians. Fintech offers the means to make financial services more widely and more cheaply online or by mobile phone. Startups create jobs and increase competition, which will benefit consumers and small businesses the most.
An excellent model is the federal government’s $ 125 million commitment to a pan-Canadian artificial intelligence strategy, with centers of expertise in Toronto-Waterloo, Montreal and Edmonton. This expertise will benefit many sectors, with the budget focusing on agriculture (agritech), natural resources (clean tech) and healthcare (health tech). Banking and financial services will also benefit from this investment. But Budget 2017 only mentions fintech three times, when the financial sector accounts for 7% of GDP and 4.4% of all jobs in Canada. It seems like an oversight.
Canada’s financial sector is counting on the minister to defend our fintech sector. As the budget states, “The government has the opportunity – and the responsibility – to lead the way in digital innovation. Now is the time to lead when it comes to fintech.