A new report from KPMG finds that while Canada lags behind other countries in the fintech sector, it’s catching up fast by taking the right steps to nurture innovation in the financial services space.
KPMG has released its “Pulse of Fintech” report, finding that strong investment over Q4 propelled global fintech funding to $31 billion US in 2017. The number of venture capital deals in the space reached over 1,000 for the fourth consecutive year, while private equity deals hit a new high of 139 and M&A transactions in the space totalled 336.
“The global fintech market has advanced considerably over the past few years,” says Ian Pollari, Global Co-Lead, KPMG Fintech, in a press release. “As the sector matures, investors have shifted from experimenting with fintech to seeking out value-driven opportunities. This is particularly true for corporates who continue to invest and see fintech as a strategic play that will help accelerate their digital transformation agendas.”
The report found that the United States accounted for the vast majority of fintech deals, featuring nine of the top ten VC deals in Q4 2017. Canadian fintech investment saw a decline in the quarter, but 2017 was still a record year for investment, most prominently featuring the $3.6 billion US buyout of Canada’s DH Corp by Vista Equity Partners.
Canada’s participation in the space is getting more notice, however, led by innovation in the AI space. “While Canadians lag in fintech adoption compared to their US counterparts, the adoption rate is accelerating rapidly,” reads the report. “Fintech hubs in Canada are also maturing at a rapid pace — a driver of increased attention from US investors, along with Canada’s stable economy and low exchange rate.”
The report praises Canadian governments and financial institutions for their commitment to innovation, singling out the federal government’s $400 million CAD Venture Capital Catalyst Initiative as well as work by provincial regulators in Quebec and Ontario to create regulatory sandboxes to assist fintech companies in their development.
“In Q4’17, blockchain-related companies were major benefactors of these sandboxes, with both Quebec-based Impak Finance and Ontario-based TokenFunder hosting Canada’s first ICOs through their respective regulatory sandboxes,” reads the report.
“Canadian banks are also deeply engaged with fintech players and constantly thinking about how they can deploy fintech within their organizations. It’s no surprise PE and VC firms south of the border are looking to Canada for deal opportunities,” the report says.
Among the areas of the fintech space, KPMG reports that both blockchain and insurtech took the biggest leaps forward in 2017, with $512 million USD of VC investment in the blockchain space last year to go along with $2.1 billion in insurtech.
Looking forward, worldwide financial systems may see production-capable blockchain applications for the first time in 2018, according to the report, which points to the Australia Stock Exchange and its plans to replace its equity settlements process with blockchain-enabled platforms. The report says that the ASE’s initiative could be a bellwether for how blockchain investment may transpire over the coming year.