Fintech Investing

Canada has seen an “unprecedented” level of deals, while overall investment across the globe has surpassed the 2017 amount.

The fintech sector in Canada has seen an “unprecedented” level of deals, while overall investment across the globe has surpassed the 2017 amount, says a recent report from KPMG.

The report, titled the Pulse of Fintech, reveals that Canada has seen over 50 deals, with global investment hitting US$57.9 billion across 875 deals.

KMPG notes that the value of deals in Canada is down from US$510 million in second half of 2017 to US$263 million in first half of 2018, but the firm has an overall positive outlook on the sector.

“Our country is riding the wave of digital disruption that is changing the financial services ecosystem globally,” John Armstrong, national industry leader at KPMG, said in a press release. “Canadian fintech hubs are maturing at a rapid pace and large financial institutions have recognized the need to invest in the space to meet the evolving needs of their customers.”

The firm notes that Canadian investors in the space have focused on artificial intelligence (AI), aided by the fact that the country is regarded as a global leader in AI innovation. KPMG says that a number of banks have acquired companies engaged in AI solutions to assist their own activities.

“Investors and financial services companies have both recognized the massive opportunities presented by AI to automate processes, such as regulatory compliance and reporting,” Armstrong said.

As the federal government works to update the Bank Act, with completion set for 2019, investors are preparing for payment and open-banking modernizations.

While open banking has numerous definitions, Canada’s system could be along the lines of those in the UK and Europe, where firms are required to allow people to share transactional data with third parties online. Barclays (LSE:BARCsummarizes open banking further by stating that the act would require firms to allow third parties to initiate payments, similar or alternative to credit and debit card payments.

“Government initiatives are expected to spark additional growth in Canadian fintech,” Armstrong said. “The payments modernization initiative and the update to the federal Bank Act will unlock new opportunities for fintech players in the payments space and around open banking.”

The Royal Bank of Canada (TSX:RY) became the first bank in Canada to open its application programming interface (API) portal to third-party developers. The bank’s API portal currently allows developers to access credit card catalogues, minimum downpayment and branch location, and the bank says additional API packages will be added in future.

KPMG says that investment in fintech, especially from banks, will increase later in the year when the Bank Act gets more clarity.

“Banks in Canada are watching the new developments very carefully as there are currently limitations on what banks can invest in. Should the limitations be lifted, there could be a wave of new corporate investments in 2019 once changes come into force,” the firm said.

Global investment in the first half of 2018 has exceeded 2017 levels, with the global median venture deal size for late investment witnessing a rise from US$14 million in 2017 to US$25 million in 2018.

In the US, fintech investment reached US$14.8 billion across 504 deals, while in Europe investment hit US$26 billion across 198 deals. In Asia, the sector saw investment of US$16.8 billion across 162 deals.

Investor takeaway

While investment is clearly on the rise at the global level, the Canadian fintech space is also buzzing with activity in terms of volume. Banking firms and venture capitalists are waiting for the Bank Act to be formalized to pump more money into the sector.

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Securities Disclosure: I, Bala Yogesh hold no direct investment interest in any company mentioned in this article.



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