While the tech sector has attracted a lot of attention in the wake of the oil & gas sector’s collapse over the past two years, that shift in focus has only served to highlight the fact that the companies more likely to survive an economic downturn will already have been early adopters of either technological or at least innovative approaches to growing their business.
None more so than the financial sector, who have been quick to react and adapt to the promise of “disruption” posed by start-up FinTech companies.
As if to prove the point that every company is now essentially a technology company, PwC Canada‘s 2016 report on Canadian banks, titled “Embracing the FinTech movement”, points out that the Big Six banks are taking disruption seriously, looking to avoid becoming Blockbuster in a Netflix age, or the taxi industry, or Kodak, or BlackBerry just before the release of the iPhone.
“Canadian banks must stay the course with a long term view and continue, as they have, to respond to the needs of an evolving market to create a stronger ecosystem that will position them to be even more competitive on a global level,” says PwC Canada National Financial Services Leader Diane Kazarian. “This must encompass business model innovation, technology and architecture enablement, as well as cultural evolution to align with the new realities imposed by the tremendous uptick in the FinTech space.”
While the Canadian financial sector’s embrace of start-up FinTech companies may seem perverse, like the governor of a Downton Abbey-style mansion inviting a group of burglars in so that they might better swap trade secrets, it’s not ultimately very surprising when you consider that of all the “legacy” industries that start-up culture hopes to disrupt, the financial sector is easily the best capitalized of the bunch, unlike other softer targets.
Canadian banks have been rated the soundest on Earth in the World Economic Forum’s Global Competitiveness Report for the past eight consecutive years, ahead of second-place Finland and third-place Australia, even when you take into account the banks’ exposure to a balloonish Canadian housing market.
Consolidated revenues for the Big Six were $21.4 billion Cdn. in 2015, up 4.3% from $20.5 billion in 2014.
A start-up David might look at that Goliath and think, “The bigger they come, etc.”
But that is impressive growth in a country where unemployment climbed to 7.2% in 2015, and is set to climb much higher in provinces that have yet to diversify outside their resource sector.
The fact that Canadian banks are Number 1, compared to their 39th-place U.S. counterparts, is also surprising given the much more robust American economy, with its 5.5% unemployment rate and overall much more healthy economic indicators.
“The regulators are open-minded and looking for partners to help them understand how to react to a world that is changing very quickly. It’s a great time to start a business in regulated industry.” – WealthSimple CEO Mike Katchen
Combine the slump in the oil & gas sector with our overheated housing markets and an insane household debt-to-income ratio of 163.7%, and it is only surprising that auction houses and bankruptcy trustees aren’t Canada’s fastest growing industries.
But the banks are actually pretty good, despite their reputation, at introducing technological infrastructure. There was a time in this fair land when there were no ATMs and if you wanted money, you had to get to a branch before closing time. Good times.
The rise of mobile technology has posed a different kind of challenge to the banks and also lowered the barrier to entry for companies looking to build services, a fact that the banks are proactively taking into account.
“Consumers are demanding a different experience. They’re expecting experiences that simplify their lives, that make things easy,” says Tangerine CEO Peter Aceto, a company with nearly 20 years’ experience disrupting the banking sector. “It’s all about making things easy for our customers. That’s what drives the test about what technology choices we make. I think the banks in this country solve whatever problems that they need to solve.”
In recent times, CIBC partnered with Loblaw to introduce PC Financial, a white-label bank, while BMO launched the direct-to-consumer Mbanx all the way back in 1996.
CIBC partnered with MaRS Discovery District to develop an innovation hub in the MaRS FinTech cluster.
Scotiabank has opened Kabbage, a U.S.-based online small business lender and also opened its Digital Factory, designed to collaborate with FinTech start-ups and focus on mobile technology.
TD now has a space at the Communitech Hub in Waterloo and is participating in Cisco’s Innovation Centre in Toronto, working to apply technological solutions to improving customer and employee experiences.
And while start-ups, with all their talk of “disruption”, make them sound like a band of roving highwaymen shaking down the gentry, other more established Silicon Valley giants like Apple and Google are looking to get in on the FinTech and eCommerce action.
“The regulatory barrier scares people away. It shouldn’t,” said WealthSimple CEO Mike Katchen at an event called “The Age of Digital and Disruptors” sponsored by PwC Canada last November. “The regulators are open-minded and looking for partners to help them understand how to react to a world that is changing very quickly. It’s a great time to start a business in regulated industry.”
Wealthsimple has gone the reverse disruption route, spending money on a SuperBowl ad, to solidify their non-establishment product offering as a credible alternative in the minds of a risk-averse public.
Speaking at the same Age of Disruptors event, TD Bank Group Senior Vice President and Digital Officer Rizwan Khalfan said, “Leadership has to accept that this is a cultural shift. It’s easy to hide behind legacy systems and archaic back-end systems. The reality is, it’s an opportunity. You either step up or step out.”
Since 2008, the relationship of start-up enterprise to established business has been perhaps needlessly adversarial, couched in the merciless rhetoric of a man with his company’s logo printed on his T-shirt shaking a fist at authority.
But start-up companies that take their own business seriously have quickly discovered that they’re pushing against an open door.
The mobile-first, customer-centric, on-demand rhetoric espoused by the Über generation actually goes down pretty well these days in corporate boardrooms and at conferences.