Ontario has a thriving fintech and financial services sector – in fact, Toronto’s financial services sector is the second largest in North America, and spends $10 billion annually on technology.
Ouida Taaffe, Editor at Financial World, the journal for The London Institute of Banking & Finance, spoke with international business expansion expert and Diplomatic Representative of the Government of Ontario Aaron Rosland, along with Dr. Amit Monga, MD, Technology Innovation and Investment Banking, at CIBC World Markets, to discuss Canada's financial services sector.
In conversation with Dr Amit Monga (AM) and Aaron Rosland (AR)
- The Canadian Royal Mint set up, and then sold, MintChip a few years ago. How much interest is there in Canada in having a digital currency controlled by the central bank? Is Canada working with other jurisdictions on such a currency and, if so, can you say which they are?
There have been a lot of discussions around launching but I’m not aware of any initiatives at this time.
- What main fintech innovations does Canada offer?
There are a number of elements that come together to support Canada’s fintech ecosystem. Canada has a very competitive university system that generates high quality software programmers, as well as offering advanced math and science programmes. More recently, AI and machine learning initiatives, such as the Vector Institute, which was launched in Ontario, also contribute to and enrich our fintech offer.
The opening of the Vector Institute is putting Ontario on the map as far as AI is concerned, and as Amit says it is largely down to the pool of talent coming out of Canada’s universities, engagement of industry and partnership with Government. Toronto, has, like London, embraced the concept of the fintech incubator. Toronto-based MaRS is one of the world’s largest urban innovation hubs and has Canada’s first dedicated fintech cluster. Fintech clusters are also strongly represented at OneEleven, an incubator backed by one of Canada’s pension plans (OMERS Ventures), at Communitech in Waterloo and the #2 University linked incubator, DMZ at Ryerson University.
The next step for the fintech industry is to engage end users in banks. At CIBC, we’re taking steps to do this. For example, we have set up an innovation council headed by David Williamson, Senior Executive Vice-President and Group Head, Retail and Business Banking, giving us a top-level sponsor for innovation. Members of the Innovation Council include senior executives from across the enterprise. The Innovation Council has a broad mandate which includes bringing new perspectives and ideas for innovation to the bank, setting direction and priority for innovations, and championing the execution of innovation initiatives.
From the early days of fintechs emerging as potential competitors, our bank was much more likely to take the approach that they could also be partners – and that has continued as the space has grown. Now CIBC has forged a series of partnerships with fintechs to deliver innovations to clients. For example, Thinking Capital, Borrowell and the recently expanded no-fee Global Money Transfer demonstrate the use of fintech technology for mutual benefit (all are first-of-its-kind technologies in Canada). In these cases we created a completely new way of delivering a traditional service for our clients, made it faster and better, and did so in partnership with a fintech. Working with fintechs means we need to be more nimble as an organization – we have an innovative culture so we have been willing to move quickly and be agile to deliver the benefits of these partnerships to clients.
- Would there be any household name innovations coming out of Canada people would recognize?
Things are still in early stages – there are some strong names being funded and getting traction now, but they haven’t gone mainstream just yet. In some ways, we really are creating a brand new vertical.
That’s true, and I suspect we are right on the cusp of something. One example of a Toronto-based company, is Nymi, who have developed the Nymi Band, a secure and biometrically authenticated wearable payment device that identifies a user based on their unique heartbeat. Nymi was supported from an early stage by Ontario Centres of Excellence. They then went on to secure $1.4 million angel investment through the Creative Destruction Lab at the University of Toronto.
- Do you think that blockchain solves the problem of ensuring trust over a distributed network?
Absolutely, I think the concept of blockchain is great. We now see people working on specific applications that take advantage of the platform across different industries.
- So-called 'RegTech' is often mentioned here. What would you expect to see in terms of greater transparency of financial markets for regulators - both in Canada and elsewhere? Is Canada working with other jurisdictions on RegTech?
AM: Canada has always been very open, in terms of transparency. The more data collected, the more transparent the model can become.
AR: That’s right, there’s a partnership between the Financial Conduct Authority (FCA) and Ontario Securities Commission, an agreement to help companies understand regulation requirements between Ontario and the UK.
- Many countries are overhauling their payments systems. What does Canada want its payments system to be able to offer its citizens (and when) and how much of its GDP should a country spend on running its payments infrastructure?
At CIBC, we want to be able to offer seamless payment systems. Canada has been a leader in putting out payment systems, and CIBC has innovative solutions to make sure end users are not paying fees, such as a global money transfer initiative.
CIBC Live Labs space at MaRS Discovery District allows us to push boundaries at CIBC. We are working outside the “four walls” of the bank. The space offers our tech wizards an environment to explore, test and learn, becoming the next forward-thinking leaders of CIBC
The Live Labs team’s sole focus is to determine the best experiences for our clients - not on the regulations that come with being a part of a large Canadian FI – which is very much in the spirit of a start-up mindset.
- Would you expect Canada to become a cashless economy and, if so, do you have a timeframe?
Many use apps such as Uber, or Apple Pay, so based on current progress we appear to be heading in that direction, but we’re not quite there.
We’re not quite where the Swedes are – completely cashless – but I can see how societies are moving in that direction.
- Around 20% of Canadians are immigrants and CIBC offers a zero-fee remittance service. Could you tell us a little more about how this is structured (eg do you have agents in other countries) and how it pays for itself (is it a loss-leader)?
AM: Canada’s population growth is due to immigration – as you note, around 20% of the population are immigrants, and in the two major cities in Canada, more than 50% of the population was not born in the country.
Considering this, remittance products become especially important. As a bank we want to offer services and develop a relationship with this client base. Our zero-fee initiative was built on newer forms of technology, so not a traditional agent model. Instead, we partnered in phases with a few fintech businesses that gave us access to local markets around the world, as well as built our own rails into low value clearing systems with bank partners. With these partnerships and technology integrations, we developed a low-cost solution so we could offer a zero-fee service, with broad coverage to over 55 countries.
The service is not a loss leader. We make a small margin on the foreign exchange component of the transaction, but are very price sensitive on the margins given the price sensitivity of the community base.
We have heard fintech companies say that banks are charging fees on cross-border payments, when intermediary fees and bank fees are considered. In our solution, there is no intermediary fee and no bank upfront fee, though there is a foreign exchange margin. This means our solution can compete with fintech solutions.
- Can you tell us more about how CIBC prioritises investing in technology?
AM: Investing in digital technology is a big priority for us, because we see how much banking is done online and through mobile platforms. Our initiatives now are primarily focused on making the CIBC platform as accessible and user friendly as possible. We know people are accessing the web via mobile, so we have a mobile-first approach. We’re also making sure features and functionality are relevant for end users for day to day activities. We expect that the future will bring increased customization, that features will be adaptive. So the first step is making sure platform is mobile ready and usable, and that it can be your one portal that accesses all that information.
We look at innovation across three horizons. First, innovation at the core - digital services, and an increasing focus on serving our clients through digital means. Second, innovation at the boundaries –partnerships with fintechs like Thinking Capital and algorithm based lending. Finally, we look at ground-breaking ideas, for example testing Ripple blockchain technology. This is something we recently tested with our partner NAB, thus becoming part of a small group of banks globally to have successfully completed a cross-border blockchain transfer.
- How do you decide what to go for regarding fintech partnerships? Does geography play a role?
We see these investments as a partnership, so our choices are based not only on finding the best in class, but also our ability to work with them, and we are scouting out opportunities all over the world, including here in the UK. There’s a lot of great innovation coming out of Canada, and we have the US on our doorstep, but ultimately we’re looking for the strongest ideas – and I expect some of those are here in Britain.
- What do people fail to realize about Toronto?
AM: The next wave of fintech will have a lot of AI machine learning adaptive features, and that is a big strength of Canada’s, and Toronto in particular. As some of those platforms become more accessible and easier to use, they will be incorporated into fintech applications.
AR: People fail to realise how dynamic Toronto, and Ontario at large, is. That it’s possible to have a progressive and dynamic economy where people are still nice and there is still a strong community feel. People also don’t realise that Ontario is the 2nd largest tech hub in North America and that VC deals in Ontario exploded in 2015 at $939M (the highest ever). I suspect that all this will gain attention in the next wave of the fintech revolution, the AI wave, so companies aiming to be ahead of the curve should look to Toronto now.