Some of Montreal’s oldest money is chasing the next big thing in finance.
The billionaire Desmarais family has set aside a quarter of a billion dollars to invest in financial technology startups, and the clan’s Power Financial Corp. has ploughed more than $100 million into Wealthsimple Financial Inc., the Toronto-based robo-adviser that manages $1 billion for some 30,000 clients.
Now another member of the Canadian establishment is sifting pixels for gold.
Brendan Holt Dunn, the great-great grandson of Sir Herbert Holt, who co-founded the company that became Hydro-Québec, last week added the Holt Fintech Accelerator to the list of family businesses.
The fintech venture will be attached to Stradagi AI, the Montreal-based artificial intelligence laboratory in which he’s an investor. The plan is to solicit applications from 400 startups from around the world and have them compete for 10 spots at the accelerator. If we’re lucky, some of them will stick around Montreal when they graduate from the Holt program.
Entrepreneurs of that calibre could go anywhere. Holt Dunn, 38, said the winners will benefit from collaborating with world-class AI scientists and access to a network of international bankers that dates to the start of the 20th century.
Sir Herbert was president of Royal Bank of Canada from 1908 to 1934, and Holdun, the fifth-generation family firm that is now based in the Bahamas, provides wealth management and estate planning, among other financial services.
“Our family is known for finance,” Holt Dunn said over the phone. “It’s in our DNA.”
We’ll see over the next few years whether these scions of entrepreneurial wealth can repeat the feats of their ancestors.
Fintech is about to explode and banking and finance as we know it will cease to exist. Yet it’s still far from clear who will benefit most from the full-scale adoption of digital payments, computer-assisted investing, and AI-based strategies to detect bank fraud, among many other things.
The biggest banks are spending billions of dollars in a mad rush to turn themselves into tech companies. All that research and development could be for naught if behemoths such as Alibaba and Amazon decide to get serious and financial services. And yet despite those odds, thousands of young engineers and data scientists continue to think they and their startups will be the disruptors.
Finance is certainly ripe for disruption.
Most of us pay needless fees simply because our banks haven’t spent the money to upgrade their systems, or more likely, have grown too used to earning money for doing nothing. Canadian lenders charge as much as five per cent of the transaction to exchange money and send it abroad. TransferWise, a London-based outfit, will do the same for a fee of about about one per cent, according to Andrew Boyajian, head of the company’s North American operations.
Luckily for the established players, their clients are too complacent to seek out cheaper alternatives. According to a report by researchers at Ernst & Young, only 18 per cent of Canadians who were on the internet used fintech services in 2017. That compared with an average adoption rate of 33 per cent in a survey of 20 big economies. The rate in China was an astounding 69 per cent, followed by India at 52 per cent. The United Kingdom’s score was 42 per cent, while the U.S. matched the average.
Canadians probably haven’t shifted to fintech because the Bay Street oligopoly hasn’t yet done so.
“The Canadian financial ecosystem is skewed in favour of the Top Five banks,” Boyajian said in a telephone interview. “Americans are used to a wide array of choice,” and therefore they are less wary of new companies, he added. “In Canada, the choice isn’t so wide, so Canadians are more attuned to what the Top Five is doing.”
Another source of complacency is government.
Canada should be a world-beater when it comes to fintech. Toronto ranks as an international financial centre, albeit a second-tier one; our universities produce lots of talent; and our governments aren’t averse to doling out tax breaks and other types of corporate welfare.
Yet reviews of Canada’s efforts in this area are mixed.
The Bank of Canada, led by Senior Deputy Governor Carolyn Wilkins, has been studying cryptocurrencies for a few years now. And Prime Minister Justin Trudeau’s government is considering forcing banks to share their clients’ information with competitors, something that most experts say is necessary if upstart financial firms are to have a chance against established players.
The U.K. and Europe already have done that. Critics lament the absence of a Canadian strategy, and the unwillingness of governments to streamline a system that exposes new financial firms to as many as two dozen regulators, according to Michael King, a professor of finance at the University of Western Ontario’s Ivey School of Business.
“While governments in other countries have identified fintech as a strategic sector and set a goal of dominating in this global industry, Canada has not,” King wrote earlier this year. “Instead, the federal government has been complacent and passive, preferring to leave the field to the incumbents, rather than take seriously the obstacles to Canada’s fintech sector.”
Holt Dunn said he thinks Montreal has a chance to be a global player in fintech. He sees the entrepreneurs he nurtures working with the companies rather than against them, and he said politicians recognize that Canada needs to become a more tech-driven economy.
Still, he concedes there could be one thing that is holding us back.
“We are conservative,” he said. “We could take on more risk.”