The number of fintech startups dropped by 44 percent from 2022 to 2023, according to a Luge Capital report.
More than 40 percent of fintech companies operating in Canada were founded during the venture capital (VC) “sugar rush” between 2018 and 2022. But while growth in the sector has slowed since then, a new report suggests a new wave of companies could be on the horizon thanks to the rise of artificial intelligence (AI) tools and Canada's long-awaited payments modernization.
“The Canadian payments ecosystem is much larger and more dynamic than most people realize.”
The findings come from a report released today by Montreal-based software and financial technology firm Luge Capital. Canada Payments Innovation Report covers over 330 active payments startups founded in Canada over the past 25 years. Luge says the report is an attempt to get a snapshot of data that is not widely available.
“The Canadian payments ecosystem is much larger and more dynamic than most people realize,” Luge Capital associate and report co-author Christina Penick told BetaKit on Friday. “There was no comprehensive data source covering all payments startups.”
The report found that between 2018 and 2022, an average of 24 fintech startups were created each year. “These were the heydays of venture capital in the recent past,” Luge Capital managing partner Karim Gillani said in an interview. “[It’s] what I call a sugar high because there was a ton of capital available.”
Forty percent of active fintech companies in Canada were founded during this period, Gillani added. There were 14 fintech startups created in 2023, down 44 percent from last year. Only six companies were founded in 2024, and only three were registered this year.
However, Gillani and Penick said many newly founded startups may be in stealth mode, which could cause a decline. Some older companies that have recently transitioned to payments are also not reported as newly formed companies.
The report notes that from 2022 markets are cooling and investors tightening With their belts, capital efficiency has become a more important asset for startups than a “growth at any cost” mindset. Funding for late-stage payments startups has also become more concentrated among a few startups. The report also found that a Canadian fintech company typically takes nine to ten years to go from founding to exit, which is longer than the average startup. from seven to 10 years life cycle.
Over the 25-year period covered in the report, card issuing and expense management startups received the majority of venture funding; Choose, NeoAnd Swimwhich all fall into this category, accounted for just over a quarter of all venture funding for Canadian payments startups.
The creation of fintech startups appears to reflect venture capital investment activity in Canada, which has also slowed after a surge in 2021. This year, several venture capitalists told BetaKit that the market recovery they expected had not yet arrived, and first-time managers were struggling to raise their first funds.
Gillani and Penick say the report is a “lagging indicator” of the surge in startup creation that will come amid innovations in conversational artificial intelligence, the adoption of stablecoin payments and a new modernization of payments in Canada.
“We expect to see another wave of Canadian payments innovation as real-time rails go live, AI-powered automation takes off and compliance-ready APIs open up new opportunities,” the report says.
Many of the hopes for innovation in financial technology intersect with the priorities of the federal government. Over the past few months, federal authorities have taken steps to legislatively approve the issue of stablecoinsfinally pushed forward the open banking file and indicated that real-time rail payments infrastructure would be coming in the new year. Canada's Minister of Artificial Intelligence is also expected to release updated AI strategy and update privacy laws governing user data.
Other payment innovations, particularly new consumer shopping capabilities powered by artificial intelligence tools, are being led by Canadian e-commerce companies such as Shopify. Thanks to an “agent commerce” partnership with OpenAI announced in SeptemberChatGPT users will be able to purchase products from Shopify merchants directly while talking to the chatbot.
The rollout of modernized payments infrastructure has also borne fruit for other fintech ecosystems. For example, in the United Kingdom (UK), the introduction open banking rules in 2017 led to increase in users implementation of data exchange technology and made it easier for them to switch suppliers. The UK FinTech market grew by almost 20 percent According to research firm IBISWorld, between 2020 and 2025 they produced unicorns such as Revolution And Wise.
Approximately 60 percent of active fintech companies in Canada operate on a business-to-business (B2B) basis. Gillani said B2B payment infrastructure companies such as Luge's portfolio company Cybridare well positioned to capitalize on growing enterprise budgets for new technologies such as artificial intelligence.
“We are seeing large enterprises devoting significant budgets to commercial relationships with these suppliers,” Gillani said. “If you're implementing B2B payments, this is a key point to keep in mind.”
Image courtesy of Canadian Fintech Forum.
