This is the third story in a series on Canada’s fast-growing financial services industry, which helps build Canada’s export strength and global competitiveness. Our first story provided a high-level overview of the industry, and the second story outlined the key role of Canada’s financial institutions.
“There is an absolute desire for fintech [financial technology] companies to be export-ready and grow and scale internationally,” says Michelle Peng Greenberg, senior manager of partnerships for the MaRS Finance and Commerce cluster, which connects the financial services sector with start-ups developing next-generation technology in areas such as payments, financial services, peer-to-peer transactions, and alternative lending.
Peng Greenberg says many Canadian fintechs are entering jurisdictions such as Asia and Latin American, lured by their large populations and highly fragmented banking players.
To help fintech companies export abroad, MaRS has partnered with several global fintech hubs in places such as Tokyo, Sao Paolo, London, New York, Hong Kong, and Singapore.
Peng Greenberg says her organization’s role is to help fintech startups become export ready, which includes not only knowing and understanding the markets, but also understanding and complying with regulatory and legal structures.
“If you aren’t thinking about being a global company from the onset, you’re really limiting your scope,” Peng Greenberg says.
A few examples of Canadian fintechs with a global footprint include Bluzelle, a Vancouver-based blockchain company (blockchain is the data structure that enables a digital ledger of transactions that can be shared across a distributed network of computers), Waterloo-based financial services communication security companies APrivacy, and Toronto’s OutsideIQ, both which develop artificial intelligence solutions to help banks reduce risk.
Bluzelle CEO Pavel Bains said his company’s initial target was Canadian banks, but that our banking system is too developed. They started aggressively targeting the Asian market, specifically around mobile financial services and the underbanked (those with poor access to traditional financial services and institutions). Bluzelle started with Singapore and Malaysia, because of its massive population and more regional banking focus.
“Asia’s smaller banks, and financial services by mobile “telcos,” are hungry for new technologies and leapfrogging legacy systems,” says Bains.
Their goal is to target Asia Pacific next, including places such as India, Bangladesh, Indonesia, and Philippines.
For Canadian fintech startups to be successful outside of the country, Peng Greenberg says they must offer a unique product with a global intellectual property footprint that solves an international problem.
“You need to make sure it can be adaptive globally and with scalable technology,” Peng Greenberg says.
Startups also need to have the right people in each market to help grow the company, in particular those familiar with how business works in each individual country.
Canada’s life and health insurance companies have been doing business internationally for more than a century. Manulife Financial has been operating in Asia for almost 120 years and its first life insurance policy was sold in the Philippines in 1901. Meanwhile, Sun Life Financial has been offering life insurance in China, Hong Kong and India since 1892, while Great-West Life has been in the United Kingdom through Canada Life since 1903.
Today, Canadian insurers are active in more than 20 countries worldwide and provide protection to more than 45 million people, according to the Canadian Life and Health Insurance Association (CLHIA). It said foreign operations account for 42 per cent of the Canadian insurers’ worldwide premium revenues. Three of Canada’s largest insurers — Sun Life Financial, Manulife Financial and Great-West Life — rank among the world’s top 15 largest life insurers.
A Statistics Canada Survey of Innovation and Business strategy shows about three quarters of financial service firms adopt new practices or products from their international experience. An example is Manulife’s Vitality program, which uses wearable technology to reward clients for healthy living. It was first adopted at Manulife’s U.S. operations and has now been rolled out in Canada.
About half of the industry’s business today is abroad, with a focus on the U.S., Asia, and Europe, says CLHIA president and CEO Frank Swedlove. He says international operations of Canadian firms are a significant source of capital, accounting for nearly a quarter of sector revenues. International expansion also has a direct, positive impact on the competitiveness of Canadian life and health insurers.
“People need to recognize the role that financial services, and life insurers in particular, can play in promoting Canada abroad,” says Swedlove. “It’s a matter of pride that we have been able to do as well as we have in foreign markets.”
Pension plans on the global stage
Pension plans are also playing a huge role in international markets through their public-private partnership of everything from real estate to infrastructure. The Economist in 2012 referred to Canada’s pension plans as the “Maple Revolutionaries,” for their role in changing the global deal-making landscape.
A study from the Boston Consulting Group (BCG) highlights Canada’s public pension funds as key players on the global stage, despite challenging global economic conditions. It says the top 10 public pension funds manage more than $1.1 trillion in assets, which is nearly half of Canada’s GDP. Their assets under management have tripled since 2003 with investment returns driving 80 per cent of the increase, the report notes. They are also among the top infrastructure and real estate investors worldwide.
“The top 10 have shown impressive growth in investment capabilities and scale to manage the realities of a post-financial crisis world,” BCG partner Craig Hapelt said in releasing the report in December 2015. “Not only do the funds represent an important aspect of Canada’s retirement income landscape, but their investments also have a broader positive impact on Canada’s prosperity.”
A business without borders
Banks, insurers, pension funds and other financial services providers will continue to export to grow their business at home and abroad, driven by globalization and rapidly changing technology.
“The financial services world is becoming an industry without borders,” says Renee Colyer, chief executive of Toronto-based capital markets consultancy Forefactor Consulting. “They need foreign investment to grow … and are looking for ways to do that effectively.”
Still, Colyer says financial services players will need time and patience to build their brands in other countries.
“The challenge is brand awareness,” she says of Canadian banks in foreign markets. “They have to be there longer, or spend a lot of money to launch a huge campaign to make consumers feel comfortable when doing business with them.”
For financial services firms to continue to build and expand operations abroad, they need to understand and respect local culture, find a strong and reputable local partner, and have management expertise with local experience, notes the Conference Board-TFSA report.
“Overcoming these challenges is the key to successfully expanding internationally,” the report states in its conclusion. “Canadian financial institutions have shown that they are capable of successfully expanding in multiple new markets. Given the mature nature of the domestic financial services sector in Canada, continued foreign expansion is likely the best way for the sector to grow further going forward.”