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Small business and fintech: the beginning of a love story?
January 20, 2022

By Alex Vronces, Executive Director, Paytechs of Canada

“It’s better to have 100 people that love you than a million people that just sort of like you,” said Paul Graham, co-founder of Y Combinator.

The other week, someone asked me whether small businesses are the key to unlocking the success of fintech in Canada. Before I mustered an answer, Graham’s words of wisdom hit me.

Small businesses are so underserved by Canadian banks that their love is up for grabs.

According to research from the Canadian Federation of Independent Business (CFIB), small businesses don’t like Canada’s big banks. The CFIB surveyed more than 11,000 small- and medium-sized businesses to produce a report called Banking Service 2020 Report Card. The survey asked owners about their experiences when it comes to financing, fees, account management, and other services.

The findings? Credit unions get the best reviews. Big banks get the worst.

*Figure 1. Ratings from all businesses with fewer than 500 employees

Source: Canadian Federation of Independent Businesses
These scores are all out of ten. If you’re not a big business, it’s hard to qualify for a loan. High-interest credit cards are often the only way. Moreover, banking fees are high and opaque. Businesses are even charged fees to move money between accounts at the same institution.

*Figure 2. Ratings from businesses with fewer than five employees

For businesses with fewer than five employees, it’s even worse. Note the big bank that gets zero out of ten for both financing and fees. Zero! You get zero when you don’t even try. If this bank is trying, they’d be better off not trying because by trying they’re deploying resources to achieve the same rating they’d get if they didn’t deploy any.

The conventional wisdom is that small businesses aren’t as profitable for big banks as other client segments. Driven by economics, big banks focus their time and energy elsewhere.

Fintechs are driven by economics, too. A loss for banks can be a gain for fintechs. When it comes to the small business segment, fintechs are assessing risk in a more progressive way, which means they can offer products and services the big banks can’t. Fintechs have figured out how to make the economics work. That’s why so many of them are now investing in winning the love of small businesses.

In that way, small businesses are the key to unlocking the success of Canadian fintech. But it’s not going to happen overnight.

Winning the love of small businesses requires more than the bloodless economics of lower prices and higher quality. Fintechs need to go beyond transactional benefits. Fintechs need to build an emotional bond with their customers because they are only just beginning to achieve a level of familiarity. It takes a few members of the community to accept you before the rest of the community does. As the Spice Girls deftly observed, “if you wanna be my lover, you gotta get with my friends.”

Alex Vronces

Executive Director, Paytechs of Canada

Alex is a policy wonk. He’s the executive director of Paytechs of Canada, an industry association that represents technology companies that move money. He’s also worked in policy and government affairs at Payments Canada and the Canadian Chamber of Commerce. In his spare time, he reads and writes. You can check out his thoughts on fintech and public policy here: https://themox.substack.com