Dinaro Ly, Director of the MaRS FinTech cluster in Toronto, connects rising fintech companies with financial industry stalwarts. TechPORTFOLIO recently spoke to Dinaro about the potential that smart startups tap into by incorporating cross-border planning and setting their sights on the world market.
TechPORTFOLIO: Startups in the fintech sphere have demonstrated major appeal to funders. Are fintech companies with an international component to their business plan even more appealing?
Dinaro Ly: Startups with a strong international expansion plan will always have more appeal to local and international investors, especially within the realm of partnerships and capital. However, it also means they have to work twice as hard to compete with locals in those markets who may already have a home base advantage in understanding market dynamics, access to capital and other key players.
MaRS has made it a priority to build the right resources to help Canadian startups get more plugged in to strategic markets as recently demonstrated by our partnership with NTT DATA and other innovation hubs.
Canada has a fairly conservative and risk adverse culture, so a ‘global first’ approach can also give confidence to investors about the growth potential of a company.
The math is straightforward; Canada has a highly banked population and developed industry but still represents a small market opportunity by comparison to other markets around the globe. If you can demonstrate world domination with credible numbers to an investor, you’re on the right path.
TechPORTFOLIO: Do financial regulations present a major obstacle to fintech startups with international ambitions?
Dinaro Ly: Startups will always have to navigate regulation in whatever market they intend to expand to. Some markets have regulation that will be in favour of their development and some will be a hurdle.
My advice to startups who are looking to expand to markets where they are unfamiliar with the regulatory environment is to find experts in those industries and work with the regulators to ensure your startup has the necessary regulatory oversight needed to be successful in those markets.
TechPORTFOLIO: For fintech startups, how important is it to form partnerships with established international financial institutions? Is this a necessary part of successfully doing cross-border business?
Dinaro Ly: There are 3 critical components you need to consider in order to be successful cross border, and they are all tied to each other.
1. Know the regulatory environment. If the regulatory environment is difficult to navigate and it prevents you from being successful, you should consider working with regulatory experts or established financial institutions to assist in managing that burden.
2. Understand consumer behaviours and norms in those markets. Given the sensitivities associated with personal finance in general, forming partnerships with established financial institutions in those markets would be a critical component to establishing trust, strong market penetration and scale. It would be costly to acquire customers on your own.
3. Partnership. Establish a shortlist of key financial institutions that can help your company build trust and scale quickly.
Regulations like PSD2 in Europe encourage more third-party providers (fintechs) to emerge and will provide them with the resources necessary to build competitive products while leveraging the existing banking infrastructure. Regulations like this will prove to be extremely beneficial for startups, and force traditional financial institutions to diversify their partnership models.