Canadian Fintech: Budget 2024 👀
Interac makes an acquisition. Shopify gets employees to compete with each other.
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💰 Funding
Blossom, a social media app for investors raised $500k in 1 day from their users.
They used Frontfundr, a Canadian crowdfunding platform to complete the transactions.
Happly, a marketplace for businesses to source grants, loans, tax credits and other funding received $20k in prize money.
🤝 M&A
Interac acquired the Canadian rights to Toronto based Vouchr, a multi-media engagement platform. Why?
Interac is best known for its email money transfer business “e-Transfer”, which facilitates the transfer of funds between personal and business bank accounts within certain Canadian institutions.
In 2022, $338b were moved using e-Transfer across 1b transactions.
If you’re part of the 88% of eligible Canadians that have used e-Transfer, you know that it’s a spartan messaging experience.
Vouchr will allow e-Transfer to embed rich media like emojis, GIFs, and videos - getting them closer to modern p2p payment platforms popular in the US like Venmo & Cash App.
Fun fact: e-Transfer spun out of Interac Association’s acquisition of Certapay in 2002.
TOGETHER WITH GOWLING WLG
With major investments in innovation, a clearer legislative roadmap for open banking and the introduction of sweeping regulatory reforms, Canada’s 2024 federal budget aspires to foster a more modern and inclusive financial services industry – one with technology at its heart and consumers top of mind.
In their recent budget analysis, members of Gowling WLG’s Financial Services and Technology (FSxT) team break down the key announcements poised to move Canada’s fintech sector forward.
Like what you see? Subscribe to the FSxT newsletter, connect with us on LinkedIn and check out our website for more timely content exploring the interplay of technology, financial services and regulation.
🚀 Product
Bidmii, a marketplace for homeowners to find and pay for contractors partnered with Intact to launch contractors insurance.
This is Bidmii’s second embedded fintech partnership. They launched buy-now-pay-later through Humm last year.
Aquatio, an M&A advisory firm for independent Canadian wealth management firms launched.
Vopay, a Vancouver based payments company partnered with Mastercard to offer Mastercard Move, a service for making payouts to debit cards regardless of the payment network.
Koho launched a government benefits finder.
Shopify has introduced an employee rating system, called Mastery, that gives pay raises to employees that meet specified skill targets.
The fintech is known for experimenting with employee comp.
⚖️ Policy
Last week the federal government released their 2024 Budget. The implications for financial service & fintech are big!
For my breakdown of the 9 key takeaways click here.
Putting together a budget is a thankless task. By trying to please everyone, you please no one. But this year’s budget in particular rubbed many special interest groups the wrong way, due to what I see as a mismatch between government intentions and what the likely outcome of the policy will be.
Below are some musings on the biggest unintended consequences of this year’s Budget:
Decreasing the interest rate cap to 35% APR
Government intention: subprime borrowers will pay less for loans.
Unintended consequence: subprime borrowers will pay more for loans, but get them from different lenders.
Why? Regulated subprime lenders who charge rates close to the previous rate cap of 47% will stop servicing extremely high risk borrowers. Payday lenders, who have an exemption to charge rates in the hundreds, as well as unregulated lenders will expand into this segment.
Capping non-sufficient-funds (NSF) fees at $10
Government intention: banks will charge less fees
Unintended consequence: banks may increase fees in other places
Why? Let’s look at a similar example in US banking regulation. Legislation called the Durbin Amendment capped fees that large banks could charge merchants for processing debit transactions. To compensate for the shortfall in fee revenues, 40% of these banks eliminated free chequing accounts.
Increasing the capital gains inclusion rate to 66%
Government intention: tech founders pay a little more in tax, but will receive more government support through programs for AI and clean tech.
Unintended consequence: reduces incentive for founders and investors to build companies in Canada.
Why? Tech founders & employees typically trade high salaries for the prospect of their equity being worth far more in the event of an exit. It creates very strong alignment between startups & employees to build big companies. But higher taxes reduce incentives to compromise on salary, leading to less risk taking, and less business building.
Honourable mention goes to: requesting pension funds to invest locally, which could increase local productivity at the expense of returns for pensioners.
Any questions about this year’s budget? Feel free to reply to this email.
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Have a great week! See ya 👋