As described in the ‘Special Feature’ of last edition’s Canadian Banker, the banks have woken up to an underserved SME market. This plentiful yet complex segment has received far less attention and innovation than the retail and corporate banking spaces over the years, but the industry seems to be at an inflection point. RFi Group’s Sarah Hollinshead sat down with Jon Hountalas, Executive Vice President, Business and Corporate Banking, CIBC to better comprehend this shift in momentum and what the biggest drivers of change will be.
Hountalas is a banker, and has been since 1984, yet his childhood dream was to become an entrepreneur. Self-admittedly not brave enough to enter the world, he instead has dedicated his career to serving business owners from the financial side. However through our conversation, you can see that the excitement around entrepreneurialism never really went away.
Hountalas admits that due to their complexity, SMEs have gone longer underserved than other customer segments, but is positive that banks are getting better.
“Small businesses need better access to capital and better digital and operational efficiency, we all know that. I believe that the Canadian banks are making efforts to improve this, and of course, I hope we win!”
The emergence of new players, operating in niche areas where banks have been unsuccessful at innovating, have highlighted just how underserved this market is. Hountalas reflects positively about these new entrants:
“I am glad fintechs are helping in the small business space through different models and analytical tools that are less reliant on traditional financial metrics. It is an opportunity for us, and over time we will partner with more technology companies that will ultimately bring the most value to our clients.”
CIBC joined forces with Thinking Capital in 2015, a lender that leverages technology to create faster and more seamless loans of under $100,000. Collaboration and partnership is how Hountalas sees the majority of disruptors fitting into the eco-system.
I still think the trust and reputation of a bank make it such that disruptors will have trouble breaking through, and the technologies will somehow get absorbed.
“I still think the trust and reputation of a bank make it such that disruptors will have trouble breaking through, and the technologies will somehow get absorbed.”
On the other side of the coin, these new technology businesses, including those operating outside of financial services, are one of the biggest new sectors to emerge within the Canadian market.
“We have set up a technology and innovation team across the investment and commercial bank to be able to build expertise,” Hountalas explains. “We are trying to raise our game in this area as we believe technological innovation is a big business opportunity and also an important contributor to society.”
Ever the optimist, Hountalas believes that funding generally will look different in just three years’ time.
“I think there will be more patient money available. The Canadian government is supporting this through funds to help drive private companies to grow, it may not impact the small end yet, but this should come over time.”
Access to capital is a major pain point for small businesses, and CIBC have clearly invested in bettering their service in this space. For the middle-market, the priorities are different. With funding more readily available, Hountalas describes a different service model.
You have to decide whether you want to be the cheapest, or offer the best relationship. I am less interested in price, as long as it is fair, because the relationship is where the real value is for entrepreneurs.
“You have to decide whether you want to be the cheapest, or offer the best relationship. I am less interested in price, as long as it is fair, because the relationship is where the real value is for entrepreneurs.”
Hountalas defines this value through a three-pronged approach: speed, flexibility and expertise.
“We aim to be the fastest in providing answers on credit, for example, leaving businesses thinking ‘if they are speedy when I don’t need them to be, imagine how good they will be when I do.’”
CIBC strives to celebrate the uniqueness of each client, rather than be scared of it, and that is where the flexibility comes in. Expertise in the middle market is delivered through industry and product specialization where necessary.
“For small businesses we have spent time and money on placing our expertise at a central unit, which is working really well. The relationship is still at the local branch, with the option to speak with an expert centrally when appropriate. Our research shows that small business owners are more open to this system.”
With plenty of hype around robo-advice, the traditional channels of expertise are potentially facing huge disruption. Yet, Hountalas sees the new technologies as supportive, rather than a threat.
“Robo-advice is not going to take off in the next three years I would say, I think entrepreneurs need the human touch. It does not necessarily have to be in the same room; technologies and data should help us to develop the same personal relationship, without the same level of one-on-one contact.”
Further diversification of the export market is also an area in which Hountalas sees impending change.
“I would like to see private companies moving beyond the US. Such a huge amount of our exports go to the US market and we need to diversify beyond North America.”
With such an infectious optimism for this sector, and big dreams of growth, Hountalas seems like the person for the job of transforming the Canadian SME banking sector. The sentiment conveyed in his closing words dictate just how important this customer segment is to Canada at large.
“Watching what small and medium businesses do for the economy, in job creation, in charitable donations, I really think it is a noble calling. I am excited to have been so close to this industry for so long and to have had the chance to serve entrepreneurs and learn from them.”