Canadian banks are actively pursuing opportunities to play a vital part in the growth of fintech, even though 81 percent of global banking CEOs begin to see the pace of technological change as a threat, PwC says in a new report.
The consulting firm says the large banks in Canada are “laser-focused” on answering both threats and opportunities presented by fintech companies, a few of which combine technology and easily available online data to offer competitive services and products such as personal and business loans.
There are now a lot more than 80 fintech companies in the united states, mostly headquartered in Toronto, Waterloo, and Vancouver, that have attracted investments of about $1 billion since 2010, according to PwC.
Canada is also attracting competitive firms for example New York-based small company lender OnDeck, and Chicago-based “near-prime” lender Avant, that have found success in the usa.
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Some fintech firms will work with banks on innovation, while some are bound to present “a number of disruptions and threats” as they make inroads into banks’ traditional territory, PwC says.
“If Canada’s banks don’t keep up, they be in danger that outside competitors brings their proven, successful offerings to Canada and slowly erode market share,” the report warns.
The consulting firm predicts Canadian banks will ultimately pursue parallel strategies. In some instances, they will collaborate with and “leverage” the help of fintechs. Simultaneously, they will concentrate on internal innovation to be able to contend with others.
PwC notes that Canadian banks have already been dipping into fintech in a concrete way, some since early last year. Canadian Imperial Bank of Commerce, for instance, entered a partnership to produce a corporate innovation hub at MaRs in Toronto. The bank then partnered with internet small company lender Thinking Capital in a referral partnership.
Bank of Nova Scotia made an investment in Kabbage, a U.S.-based online small business lender, and created an internal “digital factory” to pay attention to technology and mobile banking — often in partnership with external start-ups.
Toronto-Dominion Bank, meanwhile, partnered with Moven, a mobile personal financial management platform, to establish an innovation lab at Communitech. TD can also be collaborating on technology innovations targeting customers and employees in Cisco’s new Toronto Innovation Centre.
Royal Bank of Canada is testing of payments technology with Nymi Wristband, and forged an alliance with Uber for loyalty rewards.
Earlier this season, Bank of Montreal launched SmartFolio, an electronic portfolio management service made to compete with both traditional players and “roboadvisers.”
As for that fintech companies, the PwC report suggests their rapid growth could eventually attract regulatory scrutiny.
“Currently as peripheral players, some fintechs are able to navigate with no same burdens” as banks, the report said. “As they continue their evolution, the regulatory environment might evolve to bring constraints that will likely impact their progress.”
The report suggests this scrutiny is likely to pick up once fintech risk models and loan approval algorithms, most of which use “social” data, are put to the test inside a downturn.
Financial Post
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