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The Toronto-Waterloo Region fintech corridor is the heart of Canada's financial services industry. It's home to the head offices of the five largest banks and three of the top four insurance companies in the country. These financial institutions are globally recognized, with a broad U.S. and international presence. An hour by air to New York, Boston or Chicago, this vibrant region of Ontario ranks high among the world's most established fintech ecosystems.
The Toronto-Waterloo fintech corridor is part of the second largest IT cluster in North America. Located in southern Ontario, just north of the U.S. border, the corridor spans a distance of just over 100 km. Over six million people live and work in the area. Ontario is also the birthplace and home to a number of leading technology companies including Open Text, Sandvine and D+H.
Representing the single largest population group by generation, Millennials demand convenience and low cost, self-serve financial alternatives. Canadian financial institutions are responding by collaborating with emerging fintech companies, leveraging their agility and innovative spirit to deliver better customer experiences. Apple, Alphabet, Microsoft, and Amazon all do R&D in Ontario.
Fintech entrepreneurs are solution providers, actively moving the industry forward. Supported by a steady supply of excellent engineering talent graduating from the University of Waterloo and the University of Toronto, these businesses focus on designing and offering new innovative fintech tools.
What shines through is the talent, coupled with the environment that these academic institutions create. It's so inspiring and we're so lucky to be able to tap into that.
- Vuk Magdelinic, CEO of Overbond
Steve Woods, Senior Engineering Director at Google, returned from Silicon Valley to Waterloo where he earned his Ph.D. The quality of the engineering graduates in the area was definitely a factor in his return.
"The UWaterloo co-op engineering program is almost certainly the best program [in the world] for producing computer scientists, software developers and engineers in terms of their ability to enter the work force and become productive quickly. They also come out with a unified culture that really suits start-ups." Woods adds, "The people that we were hiring [from UWaterloo] were more productive than almost anywhere else out of the gate, and did very well long-term compared to people from other environments."
Incubators and accelerators support growth and development by ‘clearing a path' for fintech businesses. They facilitate partnerships with governments, regulators, large financial institutions and investors to foster innovation.
According to Steve McCartney, VP Startup Services Group at Communitech in Kitchener, new fintech companies need to "solve real-world problems, and do it in a better way than established companies can do on their own."
At MaRS, an urban innovation district based in Toronto, collaboration between corridor participants is vital. Salim Teja, Executive Vice President, Ventures at MaRS, notes that Canadian financial institutions are aware of their central role in enabling fintech innovation. "Fintech is the industry with the biggest desire to ramp innovation, the biggest concern around disruption and the biggest interest in changing culture and the approach to product and service development." Recognizing this balance, each of the large financial institutions have established partnerships with Ontario universities, incubators and individual fintech companies to deliver innovative products.
A new generation of fintech entrepreneurs such as Vuk Magdelinic, CEO of Overbond, credits local incubators, such as Communitech and MaRS, with enabling his company to flourish. He also adds, "There are a lot of other fintech startups that are trying to do something very innovative, and as a community we are helping each other." Overbond's solution brings together various stakeholders in the primary bond issuance market with greater transparency.
Ben Bittrolff's first fintech company, Kitchener-based Cyborg Trading Systems, grew out of his desire to solve challenges he was facing on the job. According to Bittrolff, "the things we were building for ourselves eventually become products for others." Bittrolff's latest venture, Silqe, is a financial search engine that aids in the analysis of publically available financial data. Bittrolff offers this advice to fintech entrepreneurs: "Immediately get ingrained into an ecosystem to get the resources and help you need."
Communitech and MaRS each have a range of programs that offer specialized support and resources to meet the needs of growing start-ups. Communitech's Rev Program focuses on companies that have a marketable product, but need sales and marketing assistance. Larger fintechs that already have Series A or B funding benefit from the MaRS Venture Growth or Scale Programs. Teja highlights the benefits of these programs at MaRS: "We think of innovation at scale which includes two elements. The invention process [entrepreneurs] and the adoption process [policy makers and regulators] – and connecting these two together because it is so important for fintechs."
Teja also adds that MaRS "pick[s] the areas where we can win, where we have really strong entrepreneurs, amazing talent … [and] capital coming in, [to help] unlock global opportunities."
Start-ups bring innovation to the table and the big financial companies have the framework to deal with the regulatory requirements.
- Janet Ecker, President and CEO of the Toronto Financial Services Alliance
The strong regulatory environment that helped Canada's banks withstand the 2008 financial crisis is a clear advantage. Magdelinic explains that the "regulatory regimes [across North America] are similar," allowing Overbond to build a platform that is readily available in Canada and the U.S. market.
The Ontario government and Canadian federal government support fintech companies through meaningful tax incentives for investments in research, development and innovative technologies. For some companies, the cost of research and development may be cut in half. Bittrolff explained that his companies have been able "to procure support and funding for R&D that isn't specifically available in the [United] States," and that "Ontario suited us really well because of the available R&D tax breaks."
Large financial institutions rely on existing infrastructure to enable global payments, transfers, investments, settlements and reporting. Successful fintech companies have developed cost-effective solutions that reduce customer friction points while improving the user experience.
By collaborating with large financial institutions, fintech companies gain access to this well-established infrastructure. In turn, financial institutions can expand their reach and market share by leveraging the diverse, low cost options created by fintech innovators. According to Ecker, "hardly a week goes by now that there isn't another announcement from one of the large Canadian financial institutions about another partnership being made with the fintech community."
Recently, TechCrunch praised everything Toronto has to offer – from our exceptional talent to our creative, entrepreneurial spirit.
Google's Steve Woods says the region exhibits "an enormously strong sense of community that's very unique and not present in any other place in the world. People work together, to make the region better."
More than that, Toronto-Waterloo is a technological force to be reckoned with – the powerhouse behind Canada's entire financial services industry. And it's truly the place to be if you're in the fintech game.
August 25, 2016
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All figures are in Canadian dollars unless otherwise noted. Information is accurate at the time of publication.