Global fintech and funding innovation ecosystem
August 23, 2019   Digital, NEO, Open Banking, Open Finance, Entrepreneurs, Start-ups, Small Businesses, FinTech and Alternative Finance, Marketplace Lending/P2P, Lending, Digital Bonds, BNPL   No comments

Will Novel Fintech Models Thrive in Canada?

Fortunly | Biljana Nikolovski | Aug 23, 2019

demand for Altfi models surges - Will Novel Fintech Models Thrive in Canada?The figure of home-ownership in Canada is one of the highest in the world, even though the number of people who own residential property in the country slightly dipped from 69% in 2011 to 67.8% in 2016.

But, the portion of the Great White North’s population with debt repayment woes has been increasing at an alarming rate. In fact, a 2018 report revealed that 19% of seniors still have an unpaid mortgage. As a result, 20% of Canadians continue to work well into their golden years.

Certainly, a basket of solutions is necessary to help ensure that mortgages in Canada run their course, allowing homeowners to be free and clear come retirement. Fortunately, fintech solutions are here to the rescue.

According to Fortunly, peer-to-peer (P2P) lending and decentralized finance (DeFi) are some of the newest innovative models with great potential to help more Canadians, including seniors, reduce their overall cost of borrowing and to better manage debt repayment.

P2P lending enables an individual to borrow money from another individual and it allows both parties to seamlessly interact with one another through a digital platform. This is beginning to invade the mortgage space after proving its feasibility and viability in the unsecured loan territory for many years.

See:  Peer to Peer Lending: The Future of Fintech is Now

DeFi, on the other hand, is a financial system free from central-party intervention that promotes censorship resistance, and puts a premium on transparency. The ubiquity of the Internet, proliferation of smartphone sales, mass adoption of online banking, and the emergence of blockchain technology have collectively paved the way for the conception of DeFi.

Both novel concepts have the ability to break down barriers since they can eliminate geographical constraints to make the world of lending borderless. However, groundbreaking fintech models do not evolve and expand in Canada as fast as they do in the United States.

Here are a few reasons why.

 

Variety Meets Specialty

Furthermore, many P2P mortgage lending players in the United States intend to increase the size of their slices instead of consuming the entire pie. For instance, National Family Mortgage has successfully separated itself from the rest by being the go-to marketplace for P2P home loan and refinance programs among relatives.Americans enjoy the luxury of choice. Borrowers in the United States do not have to settle for any company due to a lack of selection.Peer to peer mortgages - Will Novel Fintech Models Thrive in Canada?

On the contrary, the population of P2P mortgage lenders in Canada does not scare the incumbent companies—not yet. The few P2P players in the industry are encumbered by liquidity options and inferior brand trust, which have been stunting their growth and popularity.

Nevertheless, Canadians are expected to adopt fintech solutions at a faster rate in 2019, so the local P2P lending ecosystem may mature more rapidly. Improving lending algorithms, unlocking more value, ensuring consumer data control, and enriching overall experience are the keys to helping P2P lenders and platforms in the country gain stronger momentum.

Unicorns Left and Right

Make no mistake about it, venture capitalists do not shun companies from other countries. However, the tech startups in the United States have always received the lion’s share of VC investments across the globe.

The liquid fintech landscape in America has set the stage for the creation of numerous unicorns. Leading the pack is SoFi (Social Finance), which recently managed to raise another $500 million through another round of funding.

See:  Investors, ‘starved for returns,’ flood private markets in search of high-growth opportunities

A private company with a valuation of over $1 billion does not indicate profitability, but a fintech company’s unicorn status usually signifies financial freedom. The abundance of funds at a unicorn’s disposal makes it easier to experiment and roll out fresh solutions as well as to create and test new streams of revenue.

CB Insights reveals that Canada has only one unicorn (Kik Interactive) as of January 2019, and it is not a fintech company.

The scarcity of startups generously backed by VCs in the financial services industry may dampen the entrepreneurial spirit of up-and-coming fintech founders. Unless investors begin to inject more cash into the bloodstream of potentially game-changing Canadian fintech companies soon, the expansion of P2P mortgage lending in the country might be compromised.

Regulation, Innovation, and Competition

Enacting open-banking regulations can help fuel the fintech boom in Canada. Open banking will change the rules of the game, encouraging greater competition among incumbent banks and new entrants.

It eliminates the core advantage of large financial institutions: the monopoly over the financial information of consumers. This practice calls for the sharing of such vital information in an electronic and secure manner among business rivals under the conditions satisfactory to data owners.

With more readily accessible big data, emerging fintech companies have more ammunition to compete with their bigger and richer counterparts. They will have more latitude in being resourceful and innovative. This will help consumers develop solutions they need to explore more affordable loan products and make better financial decisions.

Under optimum regulatory conditions, fintech disruptors could expose the inadequacies of the traditional players in the industry. These paradigm-shifters could put themselves in a position to grow into Canada’s next unicorns. Ultimately, the consumers would win.

See:  Open banking in Canada – time to prepare for change

The United States has yet to replicate the United Kingdom’s move requiring the adoption of open banking across the board, but many bankers in America are already voluntarily making their databases available for third-party consumption.

Building a sustainable business environment benefits all parties and does not curb innovation. Canada’s fintech sector is ready to explode, and it is only a matter of time before the stars become aligned.

Author:  Biljana Nikolovski is a tech blogger and contributor for Fortunly.com. She spends most of her time reading the newest trends in the tech and marketing world, while traveling the world.

 

NCFA Jan 2018 resize - Will Novel Fintech Models Thrive in Canada?The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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