Lack of awareness means Canadians are lagging in fintech

The uptake of financial technology services among Canadians is lagging, mainly due to a lack of consumer awareness of the alternative options available in the market.

Commonly referred to as "fintech" providers, startup online companies offer clients financial service products that are generally more cost effective and easier to access than traditional bank offerings. Online loan lenders, robo-advisers and digital payment providers are popping up frequently in the financial services space with the potential to be disruptive to the way Canadian banks do their business.

But in Canada, only 8.2 per cent of digitally active consumers have used at least two fintech products within the past six months – in the form of money transfers and payments, or savings and investments – compared with 15.5 per cent globally, according to the Ernst & Young LLP's FinTech Adoption Index. This puts Canada behind five other countries surveyed in the index, including the United States, with a 16.5-per-cent adoption rate, and Britain, with 14.5 per cent.

The biggest reason cited behind the low adoption rate is Canadians not knowing what products and services are available, says Gregory Smith, partner at EY's financial services advisory practice. More than 57 per cent of Canadians who regularly use digital devices say they were unaware that fintech products exist.

"In Canada, the strength and breadth of our traditional financial services institutions means that it's just that much harder for a smaller fintech company to make itself a household name," Mr. Smith says. "But fintech in Canada is still quite new and it certainly plays a role in awareness. I suspect as [fintech's] customer base grows, awareness will significantly increase as well."

While Canada may be behind other global players, the finding is a timely message for Canadian banks, as adoption could triple within the next 12 months.

The bulk of that increase could come from Canadians who are over the age of 55 and earn more than $150,000 (U.S.) a year, according to the EY report. Currently only 16.7 per cent of Canadians in this group report using a fintech provider, but 50 per cent intend to use fintech in the future.

"As the trend continues to catch on, traditional financial services companies will have to be much more aggressive and creative to keep their current customers," Mr. Smith says.

According to a 2015 report by the consultancy McKinsey & Co., global banks could lose up to 60 per cent of their retail profits to fintech firms within the next decade, particularly in areas such as loans and payments.

Online loan provider Borrowell entered the Canadian market last year. Since its launch, the company has processed close to $500-million (Canadian) in loan applications for Canadians.

"Most consumers don't know about options like Borrowell, but this is changing," says Andrew Graham, chief executive officer of Borrowell. "We know that Canadians want new options in financial services. We constantly hear – 'Why can't the application process for a bank account or a loan be as straightforward as opening an account with Netflix?'"

It's no surprise that young Canadians use fintech products the most. According to the EY report, almost 15 per cent of Canadian respondents between 18 and 34 years old used at least two fintech products in the past six months, followed by those aged 35 to 54 at 9.8 per cent. Less than 2 per cent of those 55 and older reported the same usage.

"Social media has been a much better tool for us than, say, buying a billboard," Mr. Graham says. "Places like Facebook allow us to have conversations one-on-one with potential customers who want to understand how we can help them."

Ease of set up is the top reason digital users turned to fintech offerings, but more attractive rates and access to different products were top of mind to users as well. Both Canadian Imperial Bank of Commerce and Bank of Nova Scotia have taken note of the potential threat these players could bring, hiring top technology experts onto their board of directors, and last fall CIBC partnered with fintech provider Thinking Capital.

"Financial services companies have to review their customer experience, products and services to fit with the new reality," Mr. Smith says. "They have to learn from and partner with the fintech community to meet their customers' needs – before new entrants do."