Financial technology overall enjoyed a robust year in 2016 in Canada, highlighted by the creation of several bank partnerships and expansion in the robo-advisor space. Lenders that previously went public, namely OnDeck, Lending Club, Mogo, and IOU each saw a sharp correction in their valuations post-IPO, with share prices down double-digits in 2016.
Here’s an insider’s view on trends from a Canadian fintech CEO as this heterogeneous sector is poised to grow and mature further in 2017:
A thinning of the pack
At this stage of the market cycle, we can expect attrition as companies’ business plans and their ability to weather market cycles are stress tested.
It’s likely that we will see a major fintech exit the Canadian market in 2017 as some of the newly created credit deteriorates in quality due to saturation of the market: both on the consumer and business fronts.
Continued appetite from yield-seeking investors
It has been estimated that more than $1 billion has already been deployed into the Canadian fintech sector since 2010, according to OMERS. Fintech continues to be a darling in its ability to attract capital.
In 2017, investment capital is likely to continue to flow into the fintech space, particularly into lending, as investors clamour over some of the attractive yields available in alternative lending in today’s otherwise low interest rate environment.
Cross pollination in the ecosystem
We are going to see an increase in collaboration in this space. Between the Canadian Payday Lending Association and the banking associations, we need representation for the alternative lenders operating in the spaces in between – and this is starting to happen.
For online lenders, this might include the economies of scale that would come from building a central database for fraudulent applications and a common framework for transparency in funding contracts.
These are developments that would only strengthen the community as players partner where it makes sense and allocate finite resources to building value in their core businesses.
Scaling up through big banks
Banks are keen to fill their dance cards with symbiotic fintech partnerships that can give them access to instant innovation and fill gaps in their offerings.
On the flipside, fintechs can unlock enhanced distribution through these alliances. That’s why we’ll see more major Canadian small and medium-sized fintechs partner with a major financial institution in the year ahead: particularly in the lending space.
Watch for who in the ecosystem the Big 5 Banks will target to build innovation capital in the spirit of better servicing their sizeable client bases.
Battered, but unbowed
As embattled management teams tighten their operations and business plans, we can expect a degree of revival in some of the beaten down publicly traded equities in the space.
We can expect some fintechs to perform better, specifically those that can demonstrate a competitive advantage that can drive real earnings power and sustainable growth.
David Gens is the founder of Merchant Advance Capital.