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Canadian banks and fintech startups more collaborative than combative

Canadian banks and fintech startups more collaborative than combative

Posted by PanamericanWorld on April 05, 2016

The showdown between Canada’s big banks and fintech startups may feature more co-existence and cooperation than competitive combat, judging by a panel discussion held Monday.

Two of Canada’s largest financial institutions – RBC and Scotiabank – showed up to debate two fintech startups – online lender Grow and cloud accounting firm Wave – in a roundtable titled “Fintech Battle: Who will win, startups or banks?”

Yet the event at the 2016 Canadian Fintech Summit in Toronto ended in a very polite (thus, very Canadian) draw.

“These are big markets and there’s a lot of opportunities for financial services startups to co-exist with the big players,” panelist Les Whiting, vice-president of financial services at Wave, told the audience.

Canada’s biggest banks are boosting their own in-house digital activities, from providing more mobile apps and payment options to heavily investing in predictive analytics to develop personalized marketing programs. Yet Monday’s event ended up highlighting how those powerful longtime incumbents are increasingly finding ways to collaborate with emerging digital disruptors.

Partnerships

Whiting explained how these partnerships can work. Although Wave still operates as a separate startup company, RBC is the exclusive provider of Wave’s Canadian financial transaction and processing services.

The deal means Wave can help its SME customers access certain financial services in an easier, more convenient way that complements traditional banks rather than trying to replace or compete with them, Whiting said.

Such partnerships also allow fintech startups to maintain their identity as innovators while leveraging the trust, brand power and distribution channels that big banks have built up with consumers during the past century, said Kevin Sandhu, CEO of Grow (formerly known as Grouplend).

Other examples of banks collaborating with fintech startups include the Digital Factory incubator launched by Scotiabank last fall and the Thinkubator opened this February by Tangerine and Ryerson University. Both facilities are located in Toronto.

Threats vs. enablers

The conciliatory tone of Monday’s event echoed the findings of a PwC reportreleased last month.

“Not all fintechs pose the same threats – or opportunities – to banks. In many cases, they can be viewed as enablers to traditional innovation and continuous improvement. It is important that banks continue to embrace a long-term approach to investment and risk-taking that gives innovation the space it needs to flourish. In the end, these efforts will help build a Canadian fintech ecosystem whose members are able to take on global competitors – and win,” the study concluded.

Event panelist Jeff Marshall of Scotiabank conceded that Amazon and other online retailers have motivated traditional banks to respond to customers in a more agile way and adopt a less hierarchical culture. Banks can’t meet those challenges overnight, however, since they’re saddled with obstacles that startups don’t face: regulatory constraints, thousands of employees to train and $2 billion in annual legacy IT costs.

But the idea that recent banking innovations are simply a knee-jerk attempt to compete with startups has been overblown, Marshall added.

“I think there’s a bit of a misperception that the banks are reacting to fintechs. What we’re actually reacting to is a changing customer,” said Marshall, a vice-president at Scotiabank who also heads up Digital Factory.

Sandhu agreed, saying his startup Grow is focused on solving the problem of meeting customer needs, “not an adversarial situation” of banks vs. startups “where someone’s going to win and someone else is going to lose.”

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