Fintech companies are offering game-changing products and services in the financial services sector, responding to customer demand for frictionless technology. Canadian banks are likewise increasingly seeking to offer innovative products and services. In addition to developing such products and services in-house, banks have been partnering with Fintech companies, seeking to leverage their technological know-how and cost-effective offerings. Fintech companies in turn seek to leverage banks’ customer relationships, their reach and experience and their expertise in compliance and risk management. Partnerships between Canadian banks and Fintech companies increased in late 2015 and 2016, and this trend is expected to continue. Some recent examples include:
- Lending. On November 18, 2015, Canadian Imperial Bank of Commerce (“CIBC“) announced its partnership with Thinking Capital to offer flexible financing services to its existing and new business clients. On October 27, 2016, CIBC also partnered with Canadian Fintech Borrowell, to allow CIBC to provide certain of its existing clients with “one-click” online lending solutions. Similar examples of partnerships from 2016 include the partnership between The Bank of Nova Scotia (“Scotiabank”) and Kabbage, a U.S. small business lender.
Canada’s “Big Six” banks are not the only banks involved in the action. In February of 2016, British Columbia-based First West Credit Union and Saskatchewan-based Conexus each partnered with Grow, an online consumer lender.
- Retail Banking. Flybits partnered with TD Bank Group (“TD“) in September 2015 to provide TD’s customers with personalized mobile banking experiences, including financial advice. One year later, TD introduced TD for Me, powered by Flybits, which offers users a “digital concierge” feature that curates content and services to create personalized, contextual experiences. In November of 2015, Sensibill, a digital receipt services provider, partnered with leading Canadian banks, including Royal Bank of Canada (“RBC”), Scotiabank and BMO Financial Group (“BMO”) to allow the banks to incorporate digital receipt functionality into their existing applications.
- Blockchain. On September 15, 2015, nine of the world’s leading banks announced their formation of a partnership with R3 to design and deliver advanced distributed/shared ledger technologies to global and financial markets. The consortium has now grown to include more than 75 of the world’s largest financial institutions, including RBC, TD, CIBC, BMO and Scotiabank.
- Artificial Intelligence. In December 2016, Scotiabank, in partnership with DeepLearni.ng, began using a machine learning tool which improves Scotiabank’s ability to collect payments from its potentially delinquent or high-risk credit card customers. The tool predicts delinquencies and suggests the time and method for Scotiabank to contact customers.
Effective partnerships require banks and Fintech companies to perform careful due diligence and carefully consider the challenges associated with pairing up. Challenges can include but are not limited to the following:
- Integrational Challenges. A challenge for any partnership is integrating the parties’ cultures, operations, resources (including people), infrastructure (including workspace and technology) and business strategies. Are the parties compatible and are they ready to adapt?
- Regulatory Challenges. Regulatory challenges are a key consideration in bank-fintech partnerships, given that the bank and the Fintech company may be subject to different regulatory requirements (in particular relating to anti-money laundering and consumer protection requirements, such as cost of borrowing disclosure requirements). Savvy Fintech companies seeking to partner with banks may want to consider seeking to meet, to the extent possible, bank-level compliance requirements. In addition, Fintech companies should pay close attention to the requirements of OSFI Guideline B-10 on outsourcing which could apply to their relationship with a bank.
- Contractual Challenges. Parties will want to carefully consider what restrictions, if any, may apply to them with respect to entering into contractual arrangements to form, implement and operate such partnerships, and the effect that the partnership could have on existing or future contractual relationships going forward. These may include existing restrictions, such as non-competes, or restrictions placed on Fintech companies, such as a requirement for third-party consent to enter into a partnership altogether.
The Canadian financial services sector is undergoing major change. Canadian banks looking to keep pace are responding, including by way of partnership. Prudent banks and Fintech companies who carefully consider risks and challenges in partnering up will be best positioned to capitalize on such partnerships going forward.
Summary of Important Recent Canadian Bank and Fintech Partnerships
|Date||Financial Institution||FinTech Company||Industry||Link to Press Release|
|December 2016||The Bank of Nova Scotia||DeepLearni.ng||Artificial Intelligence||Article|
|October 27, 2016||Canadian Imperial Bank of Commerce||Borrowell||Lending||Press Release|
|September 12, 2016||TD Bank Group||Flybits (TD for Me)||Retail Banking||Press Release|
|June 22, 2016||The Bank of Nova Scotia||Kabbage||Lending||Press Release|
|February 24, 2016||Conexus||Grow||Lending||Press Release|
|February 10, 2016||First West Credit Union||Grow||Lending||Press Release|
|December 17, 2015||Bank of Montreal||R3||Blockchain||Press Release|
|December 17, 2015||The Bank of Nova Scotia||R3||Blockchain||Press Release|
|November 19, 2015||Canadian Imperial Bank of Commerce||R3||Blockchain||Press Release|
|November 18, 2015||Canadian Imperial Bank of Commerce||Thinking Capital||Lending||Press Release|
|November 7, 2015||Bank of Montreal||Sensibill||Retail Banking||Press Release|
|November 7, 2015||Royal Bank of Canada||Sensibill||Retail Banking||Press Release|
|November 7, 2015||The Bank of Nova Scotia||Sensibill||Retail Banking||Press Release|
|September 29, 2015||Royal Bank of Canada||R3||Blockchain||Press Release|
|September 29, 2015||TD Bank Group||R3||Blockchain||Press Release|
|September 16, 2015||TD Bank Group||Flybits||Retail Banking||Press Release|