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What is Fintech?


What is fintech? It is derived from two words: financial technology, and as John Armstrong, national industry lead for financial services in Canada at KPMG points out, it’s a game changer.

“Basically, fintech and the term have evolved a bit,” says Armstrong. “It used to mean tech companies that provided services to the financial services industry, but over the last few years, the term has evolved to mean start-up companies that are focused on, disrupting or enabling the financial services industry.

According to KPMG’s Pulse of Fintech – Q4, 2016 report, $24.7 billion was globally invested in fintech in 2016. American fintech investments declined while venture capital in Europe rose. Asian fintech markets hit records highs; what is the climate of fintech in Canada?

“Quite robust and growing significantly,” Armstrong is happy to report. “Every year we do a Fintech 100 report in conjunction with our partner, H2 Ventures. The first 50 are leaders based on qualitative metrics. The next 50 are emerging fintech stars. Last year, Canada had two fintechs in the top 50 and three more in emerging stars. That is pretty good representation from Canada.”

Fintech’s disruptive reputation stems from start-ups that focused on direct interaction with consumers via an app, trying to keep banks out of the equation.

“What we have seen over time, however, is the next shift,” Armstrong notes. “Disruptors are start-ups like peer-to-peer lenders with an aspiration to take out the bank, but there is a whole other group of what we call ‘enablers’ that work with banks. They say ‘we can partner with banks.’ We still have disruptors, but even some folks that were trying to disrupt the market are shifting because they see [the value in] providing technology to the banks that the banks don’t have. They are partnering with the banks.”

As more and more banks partner with fintech startups, a new normal is emerging in the industry. Will it last?

“I think so,” admits Armstrong. “Canadian banks have been embracing fintech and collaborating with the startups. Canadian banks have done a really good job of saying ‘we need to get close to and partner with fintech providers because they are doing new and innovative things and it doesn’t make sense for us to do everything ourselves.’”

Armstrong cautions, “Fintech is growing, but not every startup is going to be successful. If you are looking to invest, you have to be cautious. Also, as a country we need to say ‘how do we foster innovation, which is what we want to do, but still protect consumers from fraud?’ Regulatory bodies are thinking about that. The banks would like to see a level playing field, to a degree. When you open an account at a bank, there are a lot of issues to ensure no money laundering is taking place. If you allow fintech to open accounts without doing those same checks and balances, is that fair?”

Fintech innovators are working on these concerns while continuing to evolve this relatively new concept, and one of those innovators is ATB.

In response to the success of, and interest in, fintech in Alberta, ATB created their own fintech space called BoostR.

“BoostR is a rewards-based, crowd-funding platform. This is different than crowd lending as no ownership position, or repayment of loans are involved,” says Teresa Clouston, executive VP, business and agriculture, ATB Financial®.

“Think of it as a variation of e-commerce where a product or service (reward) from a small business is exchanged for funds from the crowd. Entrepreneurs prepare an initial application describing their business and product or service, along with a target goal of funding they wish to raise, and the purpose of those funds. They then receive support from ATB crowd funding experts working in a virtual environment to help the business flesh out their pitch, get it up and running online and provide ongoing support to breathe life into their crowdfunding campaign. The crowd (any Albertan) may choose to fund the campaign by purchasing rewards through our online platform. If the target funding amount is raised, the business then distributes rewards as promised to the crowd. The greatest benefit of BoostR for entrepreneurs is validation of their business through pre-sales, building a customer base and getting marketing and exposure through ATB channels.”

This isn’t the only fintech service that ATB has recently launched.

“We are very excited about a brand new offering to assist entrepreneurs in the Alberta market,” says Clouston. “ATB LendR is an online platform that connects Albertans who are looking to invest with small businesses to receive financing. “LendRs earn interest on the loan instead of rewards or equity. LendR is in its very early stages of launch at this time, but we are accepting both business who are looking for funding and investors who want to help businesses succeed and are willing to invest their funds for a risk-based financial return.

“Businesses raise the first 10 per cent of the loan by private invitation, largely from family and friends. As a part of the LendR program, we help to tell the story of the business by creating a professional promotional video and write up about the business. This helps with the next stage, which is to raise the next 40 per cent from the general LendR community. If this is achieved, reaching 50 per cent of the loan goal means the other 50 per cent is funded by ATB. The loans are repaid monthly, with LendRs receiving principal and interest payments.”

Clouston points out, “Crowd lending can carry both opportunity for strong returns as well as risk of loss, including potential loss of the initial lent out funds, should the business fail. This is an important factor for investors to be aware of and comfortable with. Validating the business entity, viability, creditworthiness, etc. can be challenging for an individual investor to accomplish. LendR is supported by ATB Financials’ expertise in evaluating, validating the business entity, and while it is not a guarantee of performance, it’s our hope that this provides increased confidence for investors to help Alberta businesses.

“Crowd lending provides an alternative source of financing, which many businesses find challenging. This can be from a lack of assets, time in business, or financial missteps in the past. The capital, while it may fetch a higher cost than traditional financial institution loans, provides much needed funding to allow businesses to grow. Additionally, investors will have a vested interest in the business’ success – and so they are likely to promote, advocate and even offer assistance (purchasing their products, offering advice, making connections) to the business, and that kind of support is priceless!”

ATB is embracing fintech, and it is not just stopping with BoostR and LendR. “Apple Pay is a great feather in our cap – we’re really excited to bring the power of money movement to customers’ mobile devices, with strong security protocols that bring a lot of confidence to transactions,” says Clouston. “Also, we’re the first financial institution in North American to facilitate the ability of payments using chatbot technology on Facebook Messenger.  Right now this is under testing with a pilot group. We’re excited about the promise the future holds!”

One of the local entrepreneurs that expanded her 10-year old business with the help of BoostR is Monita Chapman of Simply Supper.

“Our vision is to take the guesswork out of supper. We want to be at every supper table in Edmonton, helping families eat healthy and delicious meals while they enjoy it together. We believe families coming together over food is important. We also want to bring out the inner chef in you and tantalize your taste buds with new and traditional flavours,” Chapman describes her company.

“We have always done business with ATB and appreciate their support, expertise and drive to grow small business in Alberta. I have followed the ATB BoostR program since the beginning and have participated in other BoostR campaigns, such as House of Sew, Sugared and Spiced, Confetti Sweets and Calgary Heritage Roasting Company. We are thrilled such a program exists and is available for us as a company to participate in.

“The process has been fun – I have learned a lot about myself as an entrepreneur, setting goals and creating the BoostR. We couldn’t do it without ATB BoostR and the support of our loyal customers.”

So, what is fintech? Fintech is the modern way banks and startups, lenders and entrepreneurs, interact for the good of the economy.