Rise of fintech includes many future risks, FSB says

Financial technology (fintech) investment in Canada remained strong in the third quarter (Q3), according to a new report on global fintech investment published from KPMG International.

In terms of both deal volume and value, activity in Canada’s fintech sector dropped in Q3, but the results are heavily skewed by the US$2.7 billion buyout of Toronto-based DH Corp., which took place in Q2. Excluding that transaction, “Canadian fintech investment remained relatively steady” in Q3, the report says. Direct fintech investment activity in Canada was US$312 million during the quarter, it adds.

“Artificial intelligence and regtech remain hot areas of investment in Canada, while insurtech is poised to see significant growth,” the report says, and “Robo-advisory is also starting to make waves in Canada.”

In particular, the report notes that the big Canadian banks are starting to define their fintech strategies, and some of them are looking internationally for innovation opportunities.

During Q3 for example, Toronto-Dominion Bank opened an office in Tel Aviv that focuses on cybersecurity and Bank of Nova Scotia announced a partnership in South America designed to gain access to startups in Mexico, Columbia, Chile, and Peru.

“Banks in Canada are getting much more serious about fintech, looking far beyond Canada for the technologies and companies able to help them achieve their desired objectives. From TD’s new office in Tel Aviv to Scotiabank’s new partnerships in South America, Canadian banks are proving to have the global mindset needed to ensure they are on top of future fintech opportunities,” says John Armstrong, national industry leader, financial services, KPMG in Canada, in the report.

On a global basis, total fintech funding remains strong, the report says, with total Q3 investment coming in at US$8.2 billion. That is up from the US$6.3 billion raised in Q3 last year. Venture capital investment in fintech was its highest in five quarters at US$3.3 billion, the report also notes.

The U.S. led the way in global fintech investment, accounting for US$5 billion worth of deals in Q3, followed by Europe at US$1.7 billion, and Asia at US$1.2 billion.

“The fintech market continues to rapidly evolve with an increasing diversity of funding participation and sources, geographic spread and areas of interest,” says Ian Pollari, global co-lead, KPMG Fintech, in a statement. “We are seeing the emergence of fintech leaders who are looking to expand internationally to scale their platforms, as well as large technology giants moving into adjacencies to create new value for their customers. This is a trend that is expected to continue and could force incumbent financial institutions to take bolder steps in response.”

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