FinTech startup creation dropped by 44 percent from 2022 to 2023, according to Luge Capital report.
More than 40 percent of FinTech companies operating in Canada were founded during the “sugar high” of venture capital (VC) funding between 2018 and 2022. But while growth in the sector has dropped since then, a new report suggests a fresh wave of companies could be on the horizon thanks to the rise of artificial intelligence (AI) tools and long-awaited payments modernization in Canada.
“The Canadian payments ecosystem is much larger and more dynamic than most people realize.”
Those findings come from a report released today by Montréal-based, software- and FinTech-focused firm Luge Capital. The Canadian Payments Innovation Report covers more than 330 active payments startups founded in Canada over the last 25 years. Luge says the report represents an effort to capture a snapshot of data that isn’t widely available.
“The Canadian payments ecosystem is much larger and more dynamic than most people realize,” Luge Capital associate and the report’s co-author Khrystyna Penyk told BetaKit on Friday. “There was no complete data source capturing all the payment startups.”
The report found that between 2018 and 2022, an average of 24 FinTech startups were created each year. “Those 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 the sugar high because there was a ton of capital available.”
Forty percent of active FinTech companies in Canada were founded during that period, Gillani added. In 2023, 14 FinTech startups were created, representing a 44-percent year-over-year drop. In 2024, just six companies were founded, and only three were recorded this year.
However, Gillani and Penyk said many recently founded startups could be in stealth mode, which could account for the drop-off. Some older companies that recently pivoted into payments are also not reflected as newly created companies.
The report notes that since 2022, with markets cooling and investors tightening their belts, capital efficiency has become a bigger asset than a growth-at-all-costs mindset for startups. Late-stage funding for payments startups has also become more concentrated among a handful of scaleups. The report also found that it typically takes nine to 10 years for a Canadian FinTech to go from being founded to an exit, which is longer than the average startup’s seven-to-10-year life cycle.
Over the report’s 25-year period, startups working on card issuances and spending management got the majority of venture funding; Koho, Neo, and Float, which all fall into that category, made up just over a quarter of all VC funding for Canadian payments startups.
The FinTech industry’s startup creation appears to mirror VC investing activity in Canada, which also cooled after a surge in 2021. Multiple VCs told BetaKit this year that the market recovery they anticipated hasn’t come yet, and emerging managers are struggling to raise their first funds.
Gillani and Penyk claim that the report is a “lagging indicator” of a surge in startup creation that will come on the back of innovations in conversational AI, adoption of stablecoin payments, and new payment modernization in Canada.
“We expect to see another wave of Canadian payments innovation as real-time rails go live, AI-based automation becomes operational, and compliance-ready APIs” create new opportunities, the report reads.
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Many of the hopes for FinTech innovation intersect with federal government priorities. Over the past few months, the feds have taken steps to legislate stablecoin issuance, finally moved the open banking file forward, and have indicated that Real-Time Rail payment infrastructure is coming in the new year. Canada’s AI minister is also expected to release a refreshed AI strategy and update privacy legislation governing user data.
Other payment innovations, particularly the new frontier of consumer shopping via AI tools, are being led by Canadian e-commerce companies like Shopify. Through an “agentic commerce” partnership with OpenAI announced in September, ChatGPT users will be able to buy products from Shopify merchants directly within a chatbot conversation.
Rolling out modernized payment infrastructure has paid off for other FinTech ecosystems. In the United Kingdom (UK), for example, the introduction of open banking rules in 2017 led to an increase in users adopting the data-sharing technology and made it easier for them to switch providers. The FinTech market in the UK grew by nearly 20 percent between 2020 and 2025, according to market research firm IBISWorld, and produced unicorns such as Revolut and Wise.
Roughly 60 percent of active FinTech companies in Canada are business-to-business (B2B). Gillani said that B2B payment infrastructure companies, like Luge’s portfolio company Cybrid, are well set up to capitalize on businesses’ growing budgets for adopting new technologies like AI.
“We’re seeing large enterprises allocate meaningful budgets toward commercial relationships with these vendors,” Gillani said. “If you’re building in B2B payments, that’s a key insight to keep in mind.”
Feature image courtesy Canada Fintech Forum.
