The unprecedented crisis resulting from the COVID-19 pandemic has had a wide range of consequences in all sectors of the economy, including the fintech ecosystem.
While the start-ups that make up the fintech ecosystem have each experienced the crisis in different ways, with more or less success than was sometimes hoped for, in the end many seem to have found it unnecessary to lament the situation, seeking instead to make the best of it.
Greater Montreal is positioned as a key player in the financial technology sector,” as Montreal International points out, particularly because this ecosystem is “supported by an impressive financial sector.
The economic promotion agency of Greater Montreal for investors and international organizations reports a favorable ecosystem for the development of financial technology companies.
It states that “Montreal is home to a thriving fintech community with local leaders such as Lightspeed, Mobeewave, Nuvei,” and cites the strong presence of technology gas pedals and incubators to support fintechs, as well as more than seven research chairs in fintech and finance.
The Quebec government, in an effort to support these activities, has notably provided $10 million in funding to Finance Montreal in 2018, in order to set up a pole of excellence in this sector.
As a result, on December 6, 2019, Station FinTech Montréal opened its doors in the heart of the business district, at Place Ville-Marie, as an anchor point for the ecosystem, offering, among other things, a new workspace dedicated to start-ups in the financial technology industry. The goal was to foster their growth through synergies and collaboration between them, but also with the major players in the Montreal financial industry.
However, three months later, the Quebec government was forced to implement exceptional policies due to the health crisis caused by the 2019 coronavirus disease. On March 13, 2020, the government declared a health emergency.
This decision led to the closure of many public places, banned gatherings of more than two people and, for all sectors and types of jobs where it is possible to work remotely, introduced telecommuting. In the wake of this, FinTech Station Montreal closed access to its newly opened premises at that time, in accordance with public health guidelines.
“The most immediate concern was, for everything, to manage the uncertainty and the changing situation,” Jacques Deforges, executive director of Finance Montreal, tells Finance et Investissement.
As a result, the 2020 edition of the Fintech Canada Forum, Canada’s largest financial technology event and Finance Montreal’s flagship activity, has been cancelled. Monthly “Off the Forum” meetings were then organized virtually. Finance Montréal also developed an initiative based on one of the Forum’s most popular activities, the Pitch Competition.
This is how the Million Dollar Startup was born. From among the applications, 20 start-ups from Canada, the United States, Asia and Europe in various fields, including wealth management and insurance, were selected to participate in the competition.
It is a “reality series” in the form of a podcast, where startups compete for the chance to obtain a $1 million investment from Portag3, our main partner for the initiative. Investissement Québec, Fasken and KPMG also supported the initiative. The six episodes were posted online in October-November and over 1,000 people have downloaded them,” explains Jacques Deforges.
On the ground
The fintechs themselves, although distinguished by their agility and innovative approach, were not spared when the economy was paralyzed. They too had to rethink their way of doing business, as well as many of their projects.
Among the impacts observed during the pandemic, Jacques Deforges mentions the decrease in pre-seed and seed investments, which probably delayed the development of some start-ups, and the concentration of capital in companies already in the portfolio of venture capitalists. On the flip side, he points out that the robustness of the ecosystem has allowed many of its players to grow faster.
“The pandemic accelerated the adoption of several technologies, including digital payment methods and electronic signatures. Fintechs in this area have been able to take advantage of these opportunities,” he illustrates.
Jacques Deforges also believes that the agility of fintechs has allowed them to quickly move into “crisis response” mode and adapt to the new reality, taking advantage of newly expressed needs.
He notes that the pandemic has had the effect of accelerating the technological transformation of financial institutions. This, in a context where IT budgets had often been reduced, ultimately supporting a trend to turn to external solutions. This would have “pushed many of them to turn to fintechs to help them in this process”.
David Nault, co-founder and managing partner of Luge Capital, a venture capital fund that invests in early-stage fintechs, agrees. COVID-19 has quickly accelerated consumer adoption of online banking solutions, online insurance quotes and investment tools.
As a result, “many Luge Capital-backed companies have attracted interest from major financial institutions interested in seeing how their solutions could help them innovate quickly.”
This has increased demand for fintechs that can help financial institutions continue to serve their customers in a virtual environment. David Nault cites Flinks of Montreal as an example, “which has grown exponentially because of its technology that facilitates online financial transactions.
David Nault also observed that at the beginning of the pandemic, many investors in the fintech funding sector took a break from new start-ups to focus on funding existing companies. A year later, however, he reports that this has changed: “Investors are back at the table,” he says.
They are still cautious, however, and are essentially looking for “companies that clearly benefit from the wind that the post-COVID market can blow them,” says David Nault.
He adds that in order to commit to new investments, gas pedals and other technology incubators must necessarily feel comfortable enough with the technology offering to commit without having met face-to-face with the entrepreneurs behind these fintechs. This is currently “the biggest challenge for the venture capital industry,” he says.
A challenge that some fintechs are not hesitating to take up, and which are thus able to make their mark. This is the case of Montreal-based Bacon Financial Technologies, better known under its Hardbacon brand. It announced on March 1, 2021 that it had obtained $1,166,400 in financing from more than 800 investors through the participatory capital financing portal FrontFundr.
The company markets a personal finance app and with this money plans to continue improving its financial product comparators, such as credit cards and online brokers, and develop a web version of its mobile app.
In another encouraging sign for Montreal’s fintech ecosystem, Finance Montreal’s International Financial Centre, which specializes in attracting international financial companies to Montreal, has welcomed two new companies in recent months, despite the health crisis.
Among them, Futures First, a subsidiary of the multinational Hertshten, has chosen Montreal as the location for its first North American office. Futures First Canada provides market analysis services for a variety of futures and options products across all asset classes, including fixed income, commodities, equities and energy products.
A happy Jacques Deforges says he’s now seeing a lot of job postings on the Quebec fintech side, which shows the sector is still growing.
“That said, recruiting tech talent will be a big concern, both on the fintech side and the financial institution side. It will be a long and difficult return to normalcy for all, but the agility and resilience of fintechs point to a successful recovery,” he adds.
