However, given the demographical weight carried by millennials and Generation Z, that’s poised to change.
Matt Fabian, TransUnion’s director of financial services, research and consulting, says, unlike the United States, most Canadian FinTechs don’t offer mortgages for the simple reason that they lack the necessary capital.
“A lot of them are privately funded, but in the U.S. we see more of that happening because there’s more backing,” said Fabian. “Canada is still in early stages and not many FinTechs are capitalized well enough, often because they’re funded by venture capitals.
“I don’t think it’s a demand issue; it’s a supply issue.”
TransUnion released its Q2-2019 consumer credit report, which revealed credit balances grew 4.3% year-over-year, to reach $1.88 trillion, and that millennials carry about as much outstanding debt as baby boomers. The report furthermore details the emergence of FinTech to satisfy evolving consumer demands that are being driven mainly by millennials and Generation Z, especially for installment loans.
“There are fewer than 1,000 FinTechs operating in Canada, only about 20% of which are in the lending business,” said Fabian. “Of that group, fewer than 50% have even gone to Stage II funding. It’s still pretty early days.”
But Laura Martin, COO of Matrix Mortgage Global and director of Private Lending Hub, believes FinTech is destined to become part and parcel of Canada’s mortgage space. Martin, a millennial, says her demographical cohorts will invariably drive the transformation.
“Manulife may have been the first to jump onboard in Canada, but the necessity of a technological revolution in the mortgage realm is clear: It benefits the regulatory body, in terms of reduced error handling and reconciliation so that data cannot be tampered with,” she said. “Consumers can fund in hours and for a fraction of the cost with smart contracts and peer-to-peer options, meaning there are little-to-no legal fees.”
In the United States, competition between traditional lenders and FinTech companies is cutthroat, and the latter often has the upper hand because of its penchant for innovation. That can sometimes cause headaches for brokers, who don’t always have the cash to buy into the latest programs or technological platforms, nor the time to update their business strategies.
That doesn’t have to be the case in Canada, though.
“Brokers and underwriters do what humans do best and step in when things require considerations of a more social and contextual nature,” said Martin. “Perhaps the most exciting future application is in the scope of what can be accommodated. Blockchain, for example, allows for the use of Bitcoin and other cryptocurrencies, and that puts international real estate lending on the table in a revolutionary way.”
That FinTech will have a major presence in the Canadian mortgage space is a foregone conclusion for Fabian—he believes it will put banks on their toes.
“FinTech is still in its infancy here, but nothing’s stopping it,” he said. “What FinTech offers over traditional banks is the idea of convenience, speed and a mobile customer experience. Banks are racing to get there, but these guys are better at it, because with a bank’s infrastructure it will be like turning a ship. FinTechs are a bit more nimble and are capturing that market.
“But banks are catching up.”