The head of a Desmarais family-backed venture capital fund says they are looking to run the same “playbook” with Canadian financial-technology company Koho Financial Inc. and the banking industry as they did with robo-adviser Wealthsimple Inc. and the investing industry.
Canada’s market for fintech lags other more mature ones in Europe and elsewhere, which makes the challenge for firms less about raising capital and more about positioning your start-up early in the small market, according to Adam Felesky, chief executive of Portag3 Ventures, a fintech-focused offshoot of Power Corp. of Canada.
Toronto-based Portag3 has invested in more than 30 fintechs and investment funds, one of the most notable of which is Wealthsimple. On Wednesday, it was announced that Portag3 had led a $42-million Series B funding round for Koho, which bills itself as an alternative to traditional banking.
“One of the advantages of investing in fintech in Canada is that if you believe you’re invested in the market leader, it’s very difficult to compete with that platform or for a competing platform to get funding once you’ve established that leadership moat,” Felesky said in a phone interview. “So if we think about Wealthsimple today, it’s become the leading brand in digital wealth. We believe it’s got a very strong leadership moat to continue to be in that position for a very long time. And we’re effectively looking at that playbook and doing the same thing with Koho and banking.”
Toronto-headquartered Koho plans to use the latest investment “to further accelerate its growth and build new products and services,” a press release said. London-based Greyhound Capital and “other strategic investors” were also in on Koho’s Series B.
According to Felesky, Portag3 now owns more than 50 per cent of Koho, having invested approximately $44 million in total in the company spread over two investment funds — $8 million in a Series A in 2017, $36 million in Wednesday’s Series B.
Koho offers customers an account with a pre-paid Visa card, issued by Vancouver-based Peoples Trust Co., and a mobile app that tracks spending. The company does not charge account fees, but takes a cut of the interchange fees that merchants pay when cards are used in their store.
According to a release, Koho has more than 120,000 accounts and $500 million in annualized transactions.
Wealthsimple, meanwhile, had more than 100,000 clients and $4.3 billion in assets under administration as of the end of March, recent data from one of its financial backers showed.
As of March 31, Wealthsimple was also 88.9-per-cent owned by Portag3, Power Financial Corp. and IGM Financial Inc., all of which fall under the Desmarais-controlled Power Corp. umbrella, although Portag3 has external investors in a second fund that is expected to close with total commitments worth more than $300 million. The firms had invested $238 million in Wealthsimple, Power Corp.’s financials showed.
Felesky said that the fund’s fintech “ecosystem” in Canada has more than 1.5 million customers, and he suggested that partnerships among Koho and the other companies are likely.
“Our view is that we’re trying to challenge the incumbent products and services in all verticals of financial services,” Felesky said.
The shots fired at Canada’s financial sector are not the first from Portag3 and the Desmarais family.
Portag3’s executive chairman, Paul Desmarais III, has criticized how banks disclose their costs to customers. Koho also unveiled a proprietary tool in April that Canadian consumers can use to scan bank statements to highlight the fees they are paying.
“Canadians have a right to know what fees they are paying for their bank accounts and what fees they are being charged throughout the year for different transactions,” Desmarais said at an event in Montreal in March. “And that is not a transparency that currently exists.”
Canada has one of the lowest fintech adoption rates in the world, according to management consultancy Ernst & Young, but the industry is becoming more crowded.
The number of payment-technology companies alone in Canada increased by 136 per cent from 2014 to 2018, a recent report from the FinTech Growth Syndicate and Paytechs of Canada stated. There are 633 paytech companies in Canada overall, the report found.
“The Canadian financial services market is experiencing a dramatic increase of fierce competition driven by the availability of new technology,” said Sue Britton, CEO and founder of the FinTech Growth Syndicate, in a release.
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