Fintech may be hot in Canadian investment circles, but deal-making lags that of other countries, signalling a funding gap that could weigh on the country’s global competitiveness.

Canadian fintechs ranked fifth in volume of global VC deals, capturing 24 of 860 total deals in 2015, according to Andreessen Horowitz-sponsored Pitchbook. Canada also ranks sixth in overall funding, securing $117 million (U.S.) of $12.5 billion in global investments, or just under one per cent of funding distributed worldwide.

For a country whose banks and their bottom-lines are the envy of the financial world, those numbers aren’t inspiring. They’re red flags.

The number highlights a glaring issue in Canada’s fintech industry: funding disparity. The funding gap between U.S. and Canadian startups is not surprising, given the size of the U.S. market. The bigger concern is that Canada ranks 13th in average funding per VC deal globally — far behind the world’s most prominent tech ecosystems, and only just ahead of Russia.

Canada ranking ahead of another tech ecosystem titan, Israel: but this is no cause for celebration either. The so-called “smart nation” has seen an increase in number of $20-million plus fintech funding rounds this year. The trend will continue if fintech initiatives such as The Floor gain momentum.

Canada’s lacklustre performance is apparent when you look at others’ statistics: According to KPMG, the U.S. market volume for alternative finance was $113.43 per person compared with $5.82 for Canada, a 95 percent discount, according to a column in the Globe and Mail by entrepreneur Ray Sharma, managing partner of Toronto-based Extreme Ventures. He’s calling for a “much deeper relationship between banks and startups” in Canada to help address the problem.

With fintech adoption set to triple in Canada this year, and considering Canada’s big six banks reported a profit of nearly $35 billion in 2015, the Canadian market is lucrative. So where is the disconnect?

Two to Five Years Behind

Risk averse VCs, credit regulations around peer-to-peer lending, and shallow relationships between startups and incumbents are all cited as problems. Peter Misek, a partner at BDC IT Venture Fund, recently told Bloomberg that Canada is two to five years behind in fintech.

Banks are responding to the threat of fintech, cutting fees and facilitating online transactions. While Canadian consumers welcome the changes, they’re defensive tactics, not innovative, long-term strategies. The reactive stance suggests Canada’s big banks haven’t fully grasped how disruptive fintech will be to their business.

Startups aren’t the only threats either. More established tech giants such as PayPal, Amazon, and Apple are also infringing on the financial industry’s territory, adding to an already increasingly competitive landscape.

Canadian fintechs might be too focused on the banks and not paying attention their global counterparts, which puts them at risk of falling behind on the international stage.

For example, U.K.-based GoCardless raised $13 million earlier this year and is eyeing the Canadian market. Sweden’s Bambora has made a number of aggressive moves to expand into the North American market, including the acquisition of Beanstream. If regulation changes are imminent, they could open the floodgates for non-Canadian fintech startups.

Partnerships Lacking

The words “collaboration” and “partnership” are used often when discussing the future narrative of fintech in Canada, but have yet to yield meaningful results. Innovation hubs within banks are still subject to slow-moving cultures and red tape, and lack the development talent needed to keep pace. Canadian fintechs might be relying on an acquisition strategy that prevents them from become true competitors to the banks.

Neither approach is conducive to much-needed disruptive change.

Whether or not banks and fintechs can transform Canadian banking is still up for debate. One thing is clear: the Canadian fintech storyline needs to change, or the homegrown industry risks falling even further behind.