By Alexandra Johnson Dingee, Art Brion, Dennis Haszko and Liz Gray
E-transferring some money may not feel like taking part in a technology revolution, but advancements in financial technology (FinTech) are reshaping the way Canadians use financial services and products.
Today, Part 5 of BRION RAFFOUL LLP’s Patent Spotlight Series will provide an overview of the FinTech space in Canada and emphasize the growing value of FinTech patents.
FinTech is a term that refers to innovation and new technology seeking to challenge the traditional methods of delivery for and use of financial services. According to the Ernst and Young Global FinTech Adoption Index 2019, FinTech adoption in Canada has increased from 18 percent to 50 percent since 2017. This report reveals that the FinTech market in Canada is growing faster than anticipated.
The Canadian FinTech Industry
Even before the COVID-19 pandemic hit Canada, 90% of the total consumer payments were made without physical cash, including via mobile payments. Some facts and figures:
- 81% of the over 22 million Canadian mobile subscribers have smartphones;
- approximately 8 million have near-field-communication-enabled smartphones;
- 28% of Canadians use their mobile device to conduct banking activities; and
- 18% of Canadians have used their mobile device to pay for products or services
Moreover, COVID-19 has likely fast-tracked the digital shift towards touchless mobile payments. The national manager and president of Visa Canada, Stacey Madge, recently said that “…the pandemic will accelerate several years’ worth of digital transformation”.
Canada vs. United States
Canada has approximately 850 FinTech companies. In contrast, 6,000 FinTech companies exist in the United States. Considering that Canada’s GDP is 1/10th of the United States, the proportions of scale suggest that Canada has a bright future in the FinTech industry.
Canadian FinTech Company Distribution
The majority of FinTech companies in Canada are located in Ontario (47%, as shown in Figure 1), with Toronto as the central FinTech hub. It is estimated that over 600 FinTech companies are headquartered in Toronto. Quebec accounts for another 24%, BC for 18%, and Alberta comes in 4th place, with 7% of Canadian FinTech companies. The remaining 4% is accounted for by the rest of the country.
Toronto is North America’s second-largest financial services hub in terms of industry employment. Ontario also boasts a robust technology sector, centered in Toronto: in fact, 281,700 people work in 20,000 IT firms in Ontario, roughly half of Canada’s IT workers. Toronto is also known for the following:
- The headquarters of the four largest banks in Canada;
- Over 80% of the international banks in Canada;
- Some of the top 10 banks in the world by market capitalization; and
- The world’s ninth-largest equity exchange, the Toronto Stock Exchange (TSX).
Top Canadian FinTech Companies
Ontario is attracting global leaders in FinTech, so it is not surprising that some of the top FinTech companies in Canada are located in Toronto. Some of Canada’s top FinTech companies are:
- Mogo Finance Technology Inc. (MOGO)
- Vogogo Inc. (VGO)
- Nest Wealth
The Patent Race
When there is a technology revolution, a corresponding race to the patent office occurs. According to Cipher, a data insights firm based in the United Kingdom, large tech firms are winning the FinTech patent race. Traditional financial institutions are trailing behind: tech giants IBM, Google and Microsoft hold 10 times more FinTech patents than the world’s 15 largest banks put together. For perspective, Bank of America holds 4,697 FinTech patent families, while IBM holds 23,864.
Even so, banks are staging a comeback in the patent race. It is now customary to see banking companies seeking to patent the various aspect of the banking process. Banks are now filing patent applications in fields as diverse as payments, capital markets, blockchain, and optical character recognition. While these technologies are related to FinTech, they may also have applications in other industries. There is no question that banks are embracing patents to stay competitive, and even relevant, in the FinTech space.
In particular, banks are recognizing the significant opportunities presented by the application of artificial intelligence (AI) in the financial services industry, and moving to protect those applications. AI can be applied in in quite a number of sectors in banking, including that of enhancing the customer experience. To further these goals, the Royal Bank of Canada has invested in its own AI research institute, Borealis AI. Toronto-Dominion Bank bought Canadian AI company Layer 6 Inc. in 2018.
The Royal Bank of Canada, Canada’s biggest bank, has filed several AI-related applications in the last year. One patent application, entitled “Systems and Method for Processing Natural Language Statements” (Canadian Patent Application No. 3,046,475), describes a computer system that can be trained to build a model used to predict the likelihood of a purchase. This patent application mentions that the invention may be used to direct “targeted and relevant” advertising campaigns at clients.
Another example of a patent application directed towards the customer experience is Canadian Patent Application No. 2,910,663, assigned to the Toronto-Dominion Bank. Noted as being for “image recognition-based payment requests”, the application includes “performing an automated computer-based facial recognition process” to identify one of the parties involved.
While there are still obstacles that slow down consumer adoption of FinTech, innovations in FinTech are changing the financial landscape in Canada. As noted by Ron Stokes, Ernst and Young’s Canada FinTech Leader, “FinTechs are no longer seen as just disrupters to the traditional financial services industry — they’re sophisticated competitors, ready to meet the changing expectations and needs of customers”. Given the accelerating pace of innovation in this field, there will be more opportunities for traditional financial institutions and FinTech companies to collaborate in the creation and development of FinTech products and services. These interactions will give rise to new and exciting FinTech developments. The intellectual property rights to such developments will need to be diligently protected by both tech companies and traditional financial institutions. The patent portfolios generated by FinTech innovations will give the companies controlling these portfolios not simply a market advantage but may even prove to be key to their survival in the coming decades.
Next, BRION RAFFOUL LLP’s Patent Spotlight Series Part 6 will highlight social media patents owned by Facebook.