TORONTO ? Canadian adoption rates of monetary services products developed by non-bank online firms, which operate under the umbrella of fintech, could triple in a year, according to a report Thursday from EY.
The consulting firm framed the results like a heads-up to banks, whose clients are the primary target of disruptive fintech firms, but the expected increase is due, a minimum of in part, to low awareness which has kept adoption rates low to this point.
“Only 8.2 percent of digitally active consumers in Canada have used at least two FinTech products within the last 6 months,” said Gregory Smith, someone in EY’s financial services advisory practice. “This puts Canada’s behind five other countries surveyed, such as 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 shouldn’t assume they’ll avoid the challenge using their newer rivals.
“As the trend continues to become popular, traditional financial services companies must be a lot more aggressive and creative to have their customers,” Smith said. “A big bit of the customer pie will be on the line here.”
Last year, a report on the global banking industry from McKinsey and Co. said losses to fintech attackers happen to be “little more than a rounding error.” But the report continued 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 businesses is captured through the fintechs, the McKinsey report said banks are in position to lose considerable amounts of cash because of margin pressure in the prices offered 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, making 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 team up 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, a web-based fintech lender formerly known as Grouplend, thinks other banks will follow suit this year, along with credit unions courting a younger demographic.
“In certain cases, this may mean cannibalizing areas of their core businesses in order to keep up in we’ve got the technology arms race,” he explained.
O’Connor acknowledged that Canadian fintech is much more “evolutionary than revolutionary” at this time, 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 longer term, particularly in the Canadian market dominated by a number of major banks, will need to offer not only a rather cheaper, faster, and much more convenient financial product or service.
“In 2016, innovation around the margin won’t cut it for these newcomers,’ O’Connor said. “To be competitive on the market with large and well-heeled banks, or attractive from a partnership perspective, truly game changing products is going to be need to delivered.”
Getting discovered may also be key.
EY’s report says over fifty percent of the “digitally active” Canadians who didn’t use two or more fintech products in the last 6 months simply weren’t aware these products existed.
The consulting firm also found some evidence of hesitation because the new technology-driven products and services aren’t trusted C but not as much as expected. Just over 10 per cent of the people surveyed gave that as a reason to not use fintech services or products.
“This finding shakes up our understanding of what lengths Canadians’ trust goes, and it is certainly something for traditional players to make note of,” said Smith.
bshecter@nationalpost.com
Twitter.com/BatPost
