Although there is great potential in the Ontario region, there is no true fintech ecosystem and various factors are inhibiting its development—and this comes at a cost to the region’s overall economic growth.
The Innovation Policy Lab at the University of Toronto’s Munk School of Global Affairs recently released a report on the region’s financial services technology sector and its impact on the region’s future economic success, which carries this sentiment.
The report, which was commissioned by the Toronto Financial Services Alliance, states that, despite having the necessary components, the lack of strong connections between Fintech firms and financial institutions is undermining our ability to create an effective ecosystem to drive economic growth.
Professors Dan Breznitz and David A. Wolfe, Co-Directors of the Innovation Policy Lab at the University of Toronto’s Munk School of Global Affairs, with support from Assistant Professor Shiri Breznitz, undertook a strategic mapping study of the key Fintech players, resources and innovation assets in the Toronto region.
“We have most of the right ingredients, but we are operating far below our real potential,” said Breznitz. “Our study revealed that on a global basis, Toronto’s Fintech growth is falling behind in comparison to other cities that have established hubs, such as New York and London.”
While progress is being made, the report says Canadian financial institutions do not act as true partners to Fintech startups to the same extent that other leading global centres do – where relationships do exist they tend to be located at the margins of the financial institutions’ main operations, in incubators or accelerators.
A critical element that is missing in Toronto is the presence of large, inexpensive incubator centres within the financial district, offering basic services with high connectivity at highly discounted rates, suggests the report. And although the federal and provincial governments have made efforts to increase the supply of seed and early venture capital to start-ups, there is still a shortage – a more direct approach through grants or conditionally repayable loans should be considered as policy reform by government.
“Both Fintech innovators and what we have defined as the ‘traditional’ financial companies are both essential to our growth and prosperity,” said Janet Ecker, President and CEO of the Toronto Financial Services Alliance. “The benefit of collaboration between these two groups is that financial companies have large existing customer bases that the Fintech community can leverage and cross-sell to, and the Fintech start-ups tend to have effective and significantly lower customer acquisition costs that can help financial companies.”