Commercial card products have seen gradual traction in the United States for years as companies digitize their payment strategies and workflows, and the pandemic has only accelerated card adoption. Industry innovation is also lowering barriers to adoption and opening up new avenues for companies to leverage free float and reward payment product offerings.
In Canada, however, adoption remains low, especially among small and medium-sized enterprises (SMEs). The challenge says CAARY CEO John MacKinlay, is that SMEs have largely fallen between the shortcomings of the country’s financial services sector.
Speaking to PYMNTS, MacKinlay explained how SME credit and finance remains a major opportunity for the FinTech disruption and explored how broader trends in B2B FinTech – such as the rise of integrated finance – present a strategic avenue for FinTech disruptors to accelerate market adoption.
Bridging the gap
As is often the case in other markets, the space for financial services to SMEs in Canada is a challenge. MacKinlay highlighted the position of the SME relative to other customers of banks and other financial institutions (FIs) as a key factor behind this obstacle.
“Small businesses, in many ways, have been an orphan segment,” he said. “The easiest way within today’s platforms to serve small businesses is to either attach it to a personal bank and everything that goes with it or to attach it to a commercial bank and everything that goes with it. And certainly my observation is that no small business is personal or commercial. He’s a completely different creature.
The ongoing consolidation of financial services in Canada today, where, unlike the United States, several large banks control most of the space, makes this challenge even more acute. This leaves few options for SMEs and fewer incentives for industry leaders to invest in products aimed at SMEs.
When it comes to credit, SMEs are faced with another factor that is not working in their favor. Limited credit history means small businesses struggle to gain approval for finance and card products, and according to MacKinlay, rejection rates for small business card applicants can be as high as 40%. For those who can secure a product, the application and approval processes can be lengthy.
“A lot of small businesses get frustrated and end up putting their business expenses on their personal card,” he said, adding that Canadian law can negatively impact this spending strategy. “There is an implication in terms of personal credit score and in terms of liability.”
Against this backdrop, CAARY is gearing up for its official launch later this year to present its business card platform designed for SMEs.
A strong partnership effort is an integral part of CAARY’s launch plans. Even before its official launch, the company announced collaborations with FinTech Expense Management Sensibill and the small business insurance platform APOLLO.
While industry collaborations can provide a valuable outlet to gain traction and reach clients, these partnerships also reflect the growth of integrated finance in the B2B segment of financial services. Whether on financial or non-financial platforms, integrating the financial tools that SMEs need into the solutions they already use is essential to deliver an optimized user experience.
It’s a “logical flow” for meeting SMBs on their terms, noted MacKinlay, who highlighted the ability to connect directly with small businesses or provide them with an integrated and seamless experience by accessing card solutions directly on the web. other platforms.
This deep integration will be at the forefront of CAARY’s future and, indeed, will likely be at the center of the SME financial services landscape as a whole. But there are still many business card and financing barriers that SMEs face today.
MacKinlay said extending financing and credit to as many SMEs as possible will be an important guide to the company’s growth strategy, which means not only connecting with more SMEs on third-party portals, but also innovative underwriting strategies. Strong risk management and credit monitoring are essential to open the door to credit and expand the types of products offered by a FinTech like CAARY. If one company is not qualified for a particular product, another might be more suitable.
As the company explores the expansion of its product offering, other forms of card products, as well as installment lending, are promising landscapes, especially as buy now, pay later solutions. (BNPL) take off with consumers.
There are many directions that an SME finance company can take in order to provide a solution more suited to the SME community, able to appropriately mitigate risk while connecting businesses to the capital and financing they have. so much needed. As the ecosystem evolves, MacKinlay emphasized that it’s not just about creating products designed for small businesses. It is also about taking a diligent approach to sound and appropriate funding.
“It’s really important when you’re a lender that you have good credit skills, and FinTechs may not have the skills or understand the importance of those skills,” he said. “We use open banking technologies to display daily cash flows, monitoring cash position, analyzing historical trends, so that we can forecast future cash flows and seasonality. This is what will allow us to create a different credit relationship with these customers.