Despite great growth potential for financial services technology in the Greater Toronto Area, the lack of a true ecosystem is among the factors inhibiting its development, according to a report released today by the Innovation Policy Lab at the Munk School of Global Affairs.
The report — commissioned by the Toronto Financial Services Alliance (TFSA) — posits that Toronto is poised for growth, but “siloed” resources and players are hampering development.
Professors Dan Breznitz and David A. Wolfe, co-directors of the Innovation Policy Lab, and Assistant Professor Shiri Breznitz at the Munk School of Global Affairs, undertook a strategic mapping study of the key financial services technology (“fintech”) players, resources and innovation assets in the Toronto region. Their report includes recommendations on how to support Toronto’s financial services industry and the fintech sector, as well as establish the Toronto region as a global fintech hub.
Some of the key findings from the report include:
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While progress is being made, Canadian financial institutions do not act as true partners to fintech start-ups 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.
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The consequence of this disconnect is that the successful fintech firms in the region become disruptors: they create products and strategies that do not require the banks as partners and customers, and instead become competitors of the banks.
- Canadian banks may be more vulnerable to unbundling and disintermediation than has been assumed; Canada’s regulatory environment provided an effective ‘moat’ around the banks to weather the financial storm in 2007-08, but this protection has made the banks slower to react to the emerging challenges posed by the fintech start-ups than in other global centres.
- 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. While a number of incubators exist, they are either more expensive than their counterparts in London and New York, are located far away from the financial industry or are not yet working collaboratively as they need to.
“We have most of the right ingredients, but we are operating far below our real potential,” said Dan 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.”
Janet Ecker, President and CEO of the Toronto Financial Services Alliance added that collaboration is key. “Fintech innovators and what we have defined as the ‘traditional’ financial companies are both essential to our growth and prosperity.”
This collaborative approach is supported by the report’s authors, who also argue that it is critical to determine which policy interventions will increase the connections and opportunities necessary to develop a successful fintech sector as a regional and global advantage.
“The findings of this report are an important call-to-action for the TFSA and its partners, like the Ontario Centres of Excellence, to address the current silos between fintech firms and the large financial institutions, if we’re going to drive future growth,” said co-author, Professor David Wolfe of the Munk School of Global Affairs and the Department of Political Science at the University of Toronto Mississauga. “The impact of not seeing and grasping the opportunity could result in a slow decline in relevance and importance of both the financial services and the fintech sector in the Toronto region.”
In the News:
- Toronto falling behind in fintech industry, report argues
The Globe & Mail| November 5, 2015
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‘Fintech’ in Canada has fallen way behind
The Exchange, CBC News | November 5, 2015 - Toronto missing a FinTech trick
FStech | November 6, 2015
Read the Report: