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Fintech is fast becoming a significant part of Canada’s financial services industry; you may not realize it, but you’ve almost certainly interacted with fintech in some form or another over the past few years. It affects not just everyday banking norms, but more bespoke financial management too. So everyone, from normal consumers to business professionals to high net worth individuals, needs to understand what fintech is and how it is integral to our daily lives.
Fintech is short for financial technology, and this innocuous name describes a wide variety of technology and tools that automates and seeks to improve financial services, of all kinds, through the use of advanced software and complex algorithms. This covers everything from personal digital banking tools to reconciliation instruments for big corporations, and much in between.
Fintech companies have actually been around for decades, but historically focussed on internal systems for large financial organizations, like banks. But over the past ten or so years, as smart tech has developed and become mainstream, fintech companies have expanded their scope to almost every aspect of financial services - personal and commercial.
While there is almost no area within financial services that cannot be improved by fintech, there are a few key fields that have the most fintech companies and the most development.
88% of Canadians have used online or mobile banking, and this is probably the most common form of fintech. Digital banking offers many different functionalities, such as:
Companies that use digital banking tools include all of the major Canadian banks, online-only banks such as Tangerine and Simplii, as well as pre-paid credit card providers like Netspend.
Payment tools are another very common aspect of fintech in Canada; 78% of Canadians use at least one form of fintech payment service. This includes household names like PayPal, as well as growing companies like Square. These companies allow you to make cashless payments to friends, family, businesses and others via highly secured online platforms or apps, thereby avoiding banks that charge high fees. These platforms utilize blockchain technology, the gold standard of encryption and reconciliation. Over $70 million in digital payments will be made by Canadians in 2020.
A related but technically separate form of fintech payment is international money transfers. Again, this is an area that traditionally costs a lot when done through a bank or other financial institution; fees can reach up to 8% and transfers may take days when using these standard methods. But fintech companies like Ripple and Transferwise can send money internationally for a fraction of the cost, and in just minutes.
While most Canadians still turn to their bank or credit union when hoping to borrow money, there is a new trend of consumers directly seeking financial assistance from fintechs. These fintechs include online-only lenders like Borrowell, whose platforms and algorithms mean quick application processes, fast approval and low rates. The majority of fintech loans are longer term, with 88% lasting more than a year, and fintechs are more likely to approve loans for subprime borrowers than traditional lenders.
Fintech has some interesting crossover points with insurtech, a growing arm of the insurance industry. Fintech tools that enable widespread access to services can, when combined with insurance companies’ back-end capabilities, provide consumers with easy access to reputable insurance products and faster claim payments. This also opens the door to innovative insurance products like those offered by Buzzvault and Slice, where personalization and on-demand services reign supreme.
Personal financial and wealth management is a huge market, and fintech is making inroads in many areas of it. Companies like Mint, Level Money and WealthSimple offer services such as:
Some personal financial fintech companies have simplistic apps to help everyday consumers with their financial planning, while others cater to high net worth individuals in every aspect of their portfolio management - but all are underpinned by fintech technology.
Lastly, more on the commercial side of finance than the retail side, there are capital markets fintech companies aimed at helping other financial institutions improve their efficiency, products and bottom line, as well as aiding businesses in general with access to business-friendly lending. A good example of this is Thinking Capital, a Canadian business finance fintech.
The main reasons Canadians are turning to fintech, in ever increasing numbers, are:
But the use of fintech in Canada still lags the rest of the world, and this is because there is a misconception about what fintech is and how it works. 29% of Canadian consumers who choose to use their traditional financial institution rather than a fintech do so because they don’t understand fintechs sufficiently.
People use fintechs for a number of reasons, including to save money and time. Fintech companies offer many useful financial services - such as online banking, digital payment methods, international money transfers, loans, and other common services - and often do so at a cheaper rate than banks. This makes them a popular choice for savvy Canadians.
Any service that utilizes innovative technology in the financial sector technically counts as a fintech service. This ranges from traditional banks with digital banking options, to online-only lenders, to automated wealth management tools. The technology they use depends on the services they’re providing, and can include smart tech, complex algorithms, machine learning, artificial intelligence, and so on.
Many people worry about their personal data and financial security when using an online payment service, but the good news is that many of these services have very secure platforms that are specifically designed to offer the maximum level of protection possible. It is however always important for users of online or mobile financial services to take steps to protect their own devices and information.
Yes, many fintechs exist in Canada with the sole aim of aiding Canadians with their investments. Wealth management fintechs, banks and others offer robo advisors, automated trading, risk management, and other services that are based on fintech technology and work to take the stress out of your portfolio management.
Canada does not have a single regulatory group that oversees fintechs, but instead regulation is handled by pre-existing bodies in the relevant field, like the Financial Consumer Agency of Canada (which supervises all financial institutions), or the Superintendents of Insurance (who oversee insurance companies). In addition, more general business laws will apply to fintechs - such as data privacy laws. Because of this, the regulation of fintechs is decentralized and can be a little complex to get to grips with.
Blockchain is a form of distributed ledger technology that helps people and companies keep accurate track of payments and reconciliation. Rather than holding information in a centralized database, which can be hacked or compromised, blockchain disperses encrypted payment records across multiple networks, ensuring absolute inviolability. This matters because it’s the technology supporting all fintechs, cryptocurrencies, and a growing number of non-financial businesses too.
A cryptocurrency is a digital currency, rather than a physical currency like Canadian dollars. Cryptocurrencies - like Bitcoin - are non-regional, meaning that they can be used seamlessly all around the world to pay for goods and services. As cryptocurrencies are based on blockchain technology, they are impossible to counterfeit. There are over 6,700 different types of cryptocurrency, and they can be bought with regular currency via specialized apps or on trading exchanges. They are considered by some as the currency of the future, and can be used as investment vehicles and in lieu of cash. To spend your cryptocurrency, you need an app or online wallet that allows you to send payments to others.
The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada's highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the "GPS of Fintech Lending" by the Toronto Star.
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