A race between a tortoise and a hare appears to be afoot when comparing Canada’s conservative financial sector with its burgeoning tech sector.
“Technology is just one of those things that are moving incredibly, incredibly quick – and especially in the finance area,” said Rod Hsu, CEO at Vancouver-based nTrust, a financial technology (fintech) company specializing in electronic money transfers and storage.
“In the Canadian financial institutions, things just move quite slow.”
And the pace at which fintechs are adapting to a mobile-driven, cashless consumer market signals the tortoise might never catch up in this race, according to a June 30 World Economic Forum study.
The report predicts that as fintech startups continue enticing customers with banking platforms designed for mobile devices, the visibility of major financial institutions will erode if they don’t collaborate with the newcomers.
Essentially, younger customers have stopped going to bricks-and-mortar bank branches in favour of transferring money, securing loans and managing finances on their phones.
Koho CEO Daniel Eberhard, whose Vancouver-based fintech’s mandate is to partner with financial institutions to hold members’ money and then offer no-fee banking, said the trick to these financial startups is focusing on one niche. Once they figure that out, they’ll put all their resources into providing a better service than the banks, which typically offer bundled services.
“What fintech companies have is the ability to be agile,” he said.
“When it comes to the rapid … growth of technology, it’s becoming more and more challenging for financial institutions to meet that pace of change.”
But rapid growth within the Vancouver fintech scene hasn’t come without challenges.
Online consumer-lending platform Mogo raised $50 million in an initial public offering in late June, when the opening price for its stock was listed at $10 a share. Share prices dipped 5% on the opening day and were trading at $7.50 a share by the second week of July.
“The challenge for us is the fintech space is in its early days in terms of investors really understanding this space,” CEO Dave Feller told Business in Vancouver.
“It’s no different than Blockbuster versus Netflix. They were both delivering video, but one was doing it driven by technology.”
For now, he said, the company is focused on the long-term picture.
Mogo has been investing heavily in marketing since June, with online ads splashed across social media imploring young people to “Disrupt your debt.”
Money has also gone toward its 60-person technology team, and, according to Feller, Mogo plans to expand soon from on-balance lending (where the company assumes the credit risk for loans to customers) to marketplace lending (where loans are kept off the balance sheets and credit risks are assumed elsewhere).
He said one of the big advantages fintechs like Mogo have over big financial institutions is they aren’t still paying millions to maintain legacy technologies inherited from a pre-mobile era.
“Even PayPal, for example, is a relatively old platform compared to some of these fintech startups,” Feller said. “They have a lot of developers on their team just supporting their old platform. What that does is not only make it very costly but it [also] really slows down the process.”
He added that Canadian banks will likely remain stymied by their own conservative mindset following the 2008 financial crisis, when U.S. banks faced serious credit problems.
“That just reconfirmed to them that staying very conservative in the long run is a solid approach.”
