What’s the one common thread among these global FinTech brands – Shopify, Freshbooks, Wave, Lightspeed and Lendified? They’re all homegrown Canadian companies turned global giants.
If you’re in the FinTech industry and are looking to scale internationally, you’ll be happy to find the perfect fit in Toronto, Canada.
What’s FinTech, and where does the FinTech Industry stand Globally in 2022?
Financial technology (FinTech) refers to a rapidly growing industry that uses a hybrid of information technology, computer science, and communication technologies to provide financial services to customers. Under a collective umbrella of FinTech, you would typically find companies that deal with Digital Payments Systems, Digital Investment Platforms, Marketplace Lending, Insurance Technology, Neobanking, Cryptocurrencies and NFTs.
2021 was a fantastic year for FinTech globally, reaching a market size of US$112.5 billion. Fintech startups saw $133 billion in venture capital funding, three times the funding of $49 billion in 2020. North America held the largest Fintech market share worldwide, followed by Europe and the Asia Pacific. This ushered in a massive wave of new FinTech startups around the world. In fact, half of Forbes’ list of Fintech 50 winners in 2022 were newcomers.
But just like many other industries, FinTech companies are still recovering from the uncertainty of the pandemic and its impact on global markets. In 2022, although the market has not been as bullish as in 2021, with inflation, increasing interest rates and Ukraine’s invasion, Vantage Market Research reports that the projections from 2022-2028 look strong with a CAGR of 19.8% and an expected market size of US $332.5 Billion by 2028.
What is Canada’s Position in the Global FinTech Landscape?
Canadians have always been eager to adopt new financial technologies.
- 81% of Canadian mobile users have smartphones, and 8 million of those smartphones are NFC enabled
- 78% of Canadians are using digital channels (online and app‑based) for most of their banking transactions
- Canada’s most prominent segment in 2022 under FinTech is Digital Payments, with a total transaction value of US$119.80bn
- 56% of consumers, spearheaded by Gen Z and Millennial Canadians, would consider using a private cryptocurrency
Canadian financial institutions and financial technology startups have long been leaders in the space globally. Year after year, the Canadian banking system has been ranked the world’s soundest by the World Economic Forum. Some of the globe’s top FinTech brands were born in Canada; you might recognize many of them – Shopify, Wave, Freshbooks, Dapper Labs, Wealthsimple, Payfirma, Quandl, Cryptologic, Mogo and more.
KPMG reports that fintech investment in Canada reached a record high deal value and deal count with $6.4B and 162 deals in 2021. Canada’s tech community is also leading the way regarding inclusivity and equality. More than half of Toronto’s financial sector is made up of women. These have opened up a gateway of opportunities for Canadian tech startups.
Toronto, a Home for Global FinTech
Toronto was recently ranked as the second largest financial hub after New York in North America, with over 1200 fintech companies, 12000 financial services companies and more than 380,000 professionals in this sector. The sector has added more than 80,000 tech jobs in the past five years.
In a 2021 Accenture Report detailing the Canadian Fintech industry, Toronto’s talent pool came second in the global market, leaving behind many Asian and US hubs. Toronto’s labour force boasts of high levels of financial literacy, progressive immigration policies put in place by the Government towards skilled workers, excellent internal mobility and solid digital skills.
The city is home to some of the most innovative tech companies like online Robo-advisory and stock trading platform Wealthsimple, financial planning & analysis software Vena, Revenue-based financing company Clearco, Internet-first bank for individuals KOHO, Cloud-based invoicing and accounting software FreshBooks and more.
Technology Incubators have also made it easier to start a fintech company in Toronto. Tech startup Accelerators and Incubators like Toronto Business Development Center (TBDC) provide mentorship programs for fintech startups that include skills training, access to influential industry networks and funding for entrepreneurs wanting to set up tech HQs in the country. This has created a hot ecosystem for entrepreneurs, with new technologies being developed every day and bright minds from around the globe bringing fresh perspectives.
Fintech Resources in Canada that Startups can Take Advantage of
In Canada, Fintech companies enjoy a very encouraging and supportive environment with many government grants, incentives for talent and government-backed loans for expansion to foster rapid growth. These include:
Industrial Research Assistance Program (IRAP)
The National Research Council (NRC) created the Industrial Research Assistance Program (IRAP) to support small and medium-sized enterprises in Canada. The IRAP has been supporting small businesses for 70 years.
Under this grant, tech startups can be eligible for anywhere between $50,000 to $500,000. Small Technology Innovation Projects are offered grants of up to $50,000 for R&D or commercialization of the product. Mid-Sized Technology Innovation Projects are eligible for larger grants for R&D or the creation of entirely new software.
The government allocated $500 million, to be paid out over the next five years, for the program in the 2021 budget.
- < 500 employees
- Must be registered in Canada
- It is a for-profit organization
Proof of Concept Program
This grant supports the commercialization of innovative natural products and technologies. Suppose your company is creating tech that can be applied to food production, wellness, water, waste management, agriculture, bioproducts or health. In that case, you could be eligible for up to 40% or $250,000 of the total cost to develop a proof of concept.
- SME, startup or academic research institute
- Tech must be commercially viable
- Revenue Generation capacity must be between $10M to $15M within a reasonable time.
Sustainable Development Technology Canada (SDTC)
SDTC is one of the top public grants. It is a private institution that helps startups in the cleantech sector grow. They are backed by the Canadian government, which provides funding and guidance. Why is a cleantech grant here? SDTC looks for companies that want to change their business’s economic and environmental impacts, so you may be eligible with a robust CRS.
SDTC helps companies commercialize sustainable, clean tech products locally and internationally. They also provide access to investors, partners, government departments and academia to support the tech.
Startups can avail of equity-free grants up to 40% of eligible project costs.
- Must have a proof of concept but not commercialized their product/service yet
- Must be a registered company in Canada
- The project must benefit the Canadian people
- The product must have quantifiable environmental benefits
- The technology must be patented
Strategic Innovation Fund (SIF):
This fund is aimed at large companies that can advance Canada’s strategic technological advantage, promote clean technology, and encourage long-term competitiveness in a global economy. It is divided into 5 streams; the scope is quite open with R&D projects, industrial research and development and technology demonstration. But the project or company size must be such that it can retain ‘large-scale’ investments in Canada. Some of the streams are eligible for up to $10 Million in contributions.
Eligibility Criteria: Project costs must be above $20 million
Scientific Research & Experimental Development (SR&ED) Incentive
If your company is working towards advancing science & technology, you can avail of this tax credit incentive. You can reduce 15-35% of your tax expenditures from your income.
It comes in 3 forms: tax deduction, tax credit, or a cash refund.
Eligibility Criteria: You’re eligible if your startup is R&D that falls under qualifying R&D.
Future trends in FinTech to look out for
The term ‘FinTech’ in itself has been expanding every year to welcome many sub-sectors of the financial technology industry, which is why FinTech is still said to be at its earliest stage. The impact of Artificial Intelligence, Blockchain, Cloud Computing and IoT is only still being estimated. The future trends of FinTech are touted to be:
Artificial Intelligence in FinTech
AI can enhance accuracy and efficiency in many different ways within FinTech services. It will increase precision for lending decision-making, improve customer support and fraud detection, create Robo-advisor wealth management services, and more competent credit risk assessment and insurance solutions. Toronto has the world’s largest concentration of AI startups, making it ripe for FinTech advancements.
Internet of Things in FinTech
Wearables like bracelets, and watches, will be seen using the Internet of Things to make payments instead of bank cards. FinTech companies are also working on having home appliances like Refrigerators and Speakers place orders and complete payments.
Faster growth for FinTech that serves ESG
FinTech companies focused on environmental, social, and governance (ESG) issues are likely to see growing interest as the global economy shifts towards greener decision-making models.
Embedded Finance will grow further
Embedded finance will continue to become a pivotal part of the industry as many banks turn service providers to non-banking or non-financial institutions, and non-banking firms provide exposure to licensed banking products and services to customers. This will further push the agenda forward of the Banking as a Service (BaaS) ecosystem.
Are you looking to establish your FinTech HQ in Toronto?
There is no better time than now to cement your place in Toronto’s global FinTech capital. TBDC, a government-designated partner for the Startup Visa Program based in Toronto, is the perfect starting point to find out how. TBDC’s 9-month business incubation program is designed to help international entrepreneurs start up and scale up in international markets. Contact us today!