B.C. fintechs ‘sweet spot’ as targets for major financial institution acquisition

PayPal has invested more than $800 million in B.C. financial technology firms since 2017; Central 1 pursues equity stake deal with local startup

Central 1 CEO Mark Blucher | submitted

When Central 1 Credit Union CEO and president Mark Blucher decided new technology was the best way to get cheaper foreign exchange rates for members, he had a decision in front of him:

“Do we build that capability ourselves?” he recalled wondering. “Or do we look for a provider?”

Central 1 opted for the latter option and set its sights on a Vancouver financial technology (fintech) startup, announcing July 12 it was taking a 28% ownership stake in Agility Forex through the credit union’s newly created C1 Ventures.

It’s the latest signal that financial institutions are transitioning from partnership mode to acquisition mode as they target B.C. fintechs.

Central 1’s move comes after Peoples Trust Canada revealed June 19 it was acquiring Vancouver-based Lendful Financial Inc. for an undisclosed amount.

And on the same day, PayPal Holdings Inc. (Nasdaq:PYPL) announced it was acquiring Vancouver-based Hyperwallet Systems Inc. for US$400 million. Including PayPal’s $302 million acquisition of TIO Networks Corp. last year, PayPal has spent more than $800 million since 2017 acquiring made-in-Vancouver fintechs.

Progressa CEO Ali Pourdad, whose Vancouver-based fintech specializes in lending, said he anticipates even more B.C. companies will be acquired by banks or financial institutions.

“Vancouver companies have now been around for sort of a sweet spot, five to seven years,” he said. “If you’ve been able to survive that long and reach a certain amount of scale, you become an acquisition target. I talk to CEOs all the time. There are a lot of companies in play right now.”

Pourdad expects this trend to heighten over the next 12 to 24 months as fintechs face challenges with the current tax regime and growing employee costs.

“Financial institutions have no choice but to embrace financial technology … be it in the front office where it’s global investing, for example, or in the back office where it’s related to things like clearing or the payment system,” said Ian Russell, CEO of the Investment Industry Association of Canada.

The prime example of the convergence between technology and financial institutions is China, he said, noting that tech giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd. have moved aggressively into asset management, payments and banking.

“When you see that happen and how aggressive and dominant they become, you look elsewhere in the world and you say, ‘Wow, what’s the potential for that kind of happening in, let’s say, North America or Europe?’”

Meanwhile, Blucher said, there are obvious benefits for Central 1 to pursue an ownership stake rather than a traditional partnership.

“It’s a little bit of a philosophical positioning more than anything,” said Blucher, who served as CEO of ICBC until last December. “I do like to operate with our partners with an equity stake and be able to have some level of influence in the continuing development in the level of capability in their organization.”

While C1 Ventures is a new subsidiary of Central 1, Blucher expects it to be an active part of the organization as the credit union decides which technologies to acquire and which ones to develop in-house.

torton@biv.com

@reporton