In a significant move that highlights the growing interest in Canadian fintech, Neo Financial Technologies Inc. has announced the successful completion of a funding round that raised $68.5 million. This investment, which saw participation from over 100 institutional investors, including the esteemed Alberta Investment Management Corp. (AIMCo), will support Neo’s pioneering loan securitization programme—the first of its kind in Canada. Since its inception in 2019, the Calgary-based digital bank has amassed over $700 million in capital, reinforcing its position in the competitive financial landscape.
A Revolutionary Approach to Securitization
Securitization, a strategy commonly employed by major banks, involves consolidating non-tradable assets into marketable securities. This process enables financial institutions to enhance liquidity by transforming illiquid assets like credit card balances into tradable investments. Jeff Adamson, co-founder and chief commercial officer of Neo, explained that this innovative approach will allow the company to leverage its credit card balances to drive future growth.
While Adamson did not disclose the precise amount of capital expected from this initiative, he indicated that the funding would be substantial, potentially reaching hundreds of millions. “It is a master trust so you can plug in other institutions into it and add on $300 million, half a billion, a billion, and just continue to scale as you add new partners on,” he stated. This flexibility underscores the strategic advantages of securitization, which can significantly reduce the operational costs associated with traditional balance sheet funding.
Strong Investor Confidence
The recent funding round also attracted investments from notable firms such as Northleaf Capital Partners, Plaza Ventures, and Sandstone Asset Management. Neo has previously drawn the attention of high-profile investors, including Peter Thiel’s Valar Ventures and prominent figures like Shopify’s Tobi Lütke and Slack’s Stewart Butterfield.
In a noteworthy development, Chinese technology behemoth Tencent Holdings Ltd. injected $50 million into Neo in 2024, valuing the company at around $510 million at that time. This marks a decline from its valuation of over $1 billion in a funding round just two years prior. Adamson confirmed that the latest round’s valuation exceeds that of the previous year, driven by robust investor demand. “We were going to raise $15 to $20 million but we had $70 to $80 million worth of orders,” he remarked, highlighting the overwhelming interest from the investment community.
Expanding the Neo Ecosystem
Since its launch, Neo has rapidly expanded its customer base, now boasting over one million users across Canada. The company has achieved this growth by collaborating with various retailers to offer a suite of Mastercards issued by ATB Financial, complete with an attractive loyalty programme. Additionally, Neo provides high-interest savings accounts through Peoples Bank of Canada and has partnered with OneVest to deliver wealth management services. Notably, in May 2023, Neo introduced a fully digital mortgage application that can be completed in as little as five minutes.
Adamson sees the securitization programme as a crucial element in Neo’s growth strategy. “The last remaining piece, as a non-bank, is adding in the bandwidth or the runway to really scale this to millions and millions of Canadians,” he said. This initiative is expected to empower Neo to broaden its reach and enhance its service offerings significantly.
Why it Matters
Neo Financial’s innovative approach to securitization marks a pivotal moment for the Canadian fintech sector, demonstrating how digital banks can leverage modern financial strategies to compete with traditional institutions. As the company positions itself to scale operations and expand its customer base, this initiative not only underscores investor confidence but also signals a shift in how financial services may be delivered in the future. With the potential to transform the accessibility of financial products for Canadians, Neo’s success could inspire similar ventures within the industry, ultimately reshaping the financial landscape across the nation.
