Vancouver’s emerging FinTech scene poised to push back against Canada’s financial centre

B.C. Technology Industry Association is formalizing a financial technology cluster after 24 startups specializing in this sector have launched since 2011  

Toronto has one, now Vancouver wants one.

It’s not a Major League Baseball team capable of making a deep run into the playoffs, but a chance to make a deep impact on the country’s financial sector.

In February 2015, Toronto’s MaRS Discovery District launched Canada’s first financial technology (FinTech) cluster.

Its aim is to connect big-name financial institutions like Interac, Moneris and CIBC with startups creating technologies for alternative lending, peer-to-peer money transfers and access to crypto-currencies like Bitcoin.

The BC Technology Industry Association (BCTIA) jumped on board the following October when it announced a partnership with PayPal Canada to create the province’s first “formalized” FinTech cluster. PayPal will provide FinTechs attending BCTIA workshops with mentorship and direct feedback about how to make money.

FinTechs are typically startups offering digital services and products aimed at sidestepping consumers’ reliance on big financial institutions.

Looking for a way to pay for a meal without cash? Vancouver-based nTrust enables digital wallet users to load money onto a smartphone app to buy products at select vendors.

What about monitoring sales at your store while you’re out of town? Control’s mobile app allows merchants to check out payments in real time on a mobile device, alerting them to any fraudulent activity.

Canada’s big banks weren’t clamouring to offer customers these kinds of digital services a few years ago when online banking was in its infancy.

But Jonathan Bixby, general partner at Stanley Park Ventures, said the cost of launching startups and the ease of developing new technology combined with Vancouver’s remote location has made the West Coast ripe for a FinTech cluster far from Canada’s financial core.

“If you want to be in the establishment, you’re not living out in Vancouver,” said Bixby, whose startup foundry has helped launch local FinTechs such as Koho and Lendful.

This, he said, has led to B.C. entrepreneurs and consumers looking for alternatives to services offered by big banks.

Since 2011, 24 FinTechs have launched in B.C., bringing the total to 29, according to figures from the BCTIA.

“We were the first on the scene for a Bitcoin ATM, and have a history of innovations in payment technologies, foreign exchange and Internet-based financial transactions,” BCTIA CEO Bill Tam wrote in an email.

“In some ways, Vancouver not being a top-tier financial centre has afforded us the opportunity to think outside the box and innovate where others can’t or won’t.”

A BCTIA spokeswoman told BIV the Vancouver FinTech cluster won’t be limited to a partnership with PayPal.

“We’re in discussions with other FinTech accelerator programs in key financial centres regarding the opportunity to build a global outreach program in multiple cities,” she said.

“We want to get the companies out of their silos to start working together and building a sector together.”

And big-name financial institutions are slowly taking notice of what’s going on in Vancouver.

Nasdaq honoured the Koho banking platform this year with its FinTech Innovation Award for best financial technology company.

In December, Trulioo raised $15 million in venture capital in a funding round led by American Express Ventures – the largest amount raised by a Canadian FinTech in 2015, according to the company.

That same week, accounting giant KPMG named Trulioo as one of the 50 global startups to watch in its FinTech 100 report.

Trulioo president Jon Jones told BIV at the time that partnering with AmEx “gives a lot of weight in terms of the merits that the banking industry can see and the value of our capabilities as well.”

These types of partnerships and formal clusters are all part of a “dual strategy” on the part of big financial institutions, according to Stanley Park Ventures’ Bixby.

“They are going to try to compete. They all have innovation teams, they have hired top designers in UI [user interfaces] and developers,” he said. “They’re also taking a wait-and-see attitude, and they’re going to pick off winners [to acquire].”

Picking those winners might come easy for some institutions as FinTechs cope with the swift growth hitting the industry.

Over the past year, customer volume for Grow – formerly Grouplend – was between two and two and a half  times greater than what founder Kevin Sandhu expected when the alternative lending service launched in 2014.

The company raised $10.2 million in venture capital last year from PlentyOfFish founder Markus Frind, and Sandhu said he plans to double his workforce of about 20 people by the end of 2016.

“Our strongest asset is that we’ve got a great group of people and one of the ways we can lose efficiency in the company is by diluting that with people who aren’t the right fit or don’t have the right skill set,” the CEO said.

Sandhu added that about one-quarter of his staff moved from elsewhere in Canada to work in Vancouver.

“Continuing to grow and still keep your culture is a challenge.”

While Vancouver’s tech sector has long lamented the region’s small talent pool, Sandhu expects more people to move to the city as FinTech grows or else pivot from another career into this sector.

He said none of his engineers worked in FinTech before they started working for Grow.

On the flip side, a similar lending service, Mogo (TSX:GO), immediately fell flat when it hit the markets through an initial public offering last June that raised $50 million. It closed its opening day at 5% below its opening share price of $10 and now sits at about $3 a share.

“FinTech is an incredibly popular space right now and the downside to that is you sometimes attract too much attention,” Sandhu said. “There are going to be businesses that are bound to fail or [do] not successfully address market needs. And that’s always challenging for the rest of the industry to get a little bit of a black eye from companies that maybe didn’t succeed.”

torton@biv.com

@reporton