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  5. MISC: Good morning 5i team How much of a strategic threat does 5i feel global Fintech is to the largest Canadian banks? [Miscellaneous]
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Q: Good morning 5i team
How much of a strategic threat does 5i feel global Fintech is to the largest Canadian banks? And, what do you the Canadian banks doing to ensure their competitive position?
The July 17th Economist article "The funding frenzy" notes "a funding round in June valued Klarna, a Swedish 'buy now, pay later' start-up at US$46 billion." They quote other similar examples. Smart folks are making these investment decisions in finch start-ups What should the small investor be considering today about their investments in Canadian banks?
Thank you.
Edward

Asked by Edward on July 22, 2021
5i Research Answer:

The trend over the past two decades of ‘software eating the world’ is still on course and we believe that improved software capabilities and technology will eventually permeate into the financial sector. The Canadian financial industry is much more consolidated than other financial industries across the globe, and so it would be quite difficult for fintech to replace Canadian banks overnight. There is no doubt that Canadian banks are looking at ways to modernize their technology solutions to compete with fintech, although what the Canadian banks have that fintech firms currently do not, is a long track record of success, lots of entrenched customers, and lots of liquidity. We can envision a future where instead of Canadian banks re-building their internal systems to modern technology, that they will begin making acquisitions and slowly rolling out ‘fintech-like’ products. The majority of Canadians’ larger purchases and borrowings are still conducted through the Canadian banks as they hold the most liquidity, and so we do not see an immediate threat to the banks and in many cases they will be able to either 'copy' or buy any perceived threats over time. With that said, it is trend to watch and the banks are not immune to competition.