March 22nd, 2018 saw RFi Group’s 2nd annual Canadian SME Banking Forum being held at the Shangri La hotel in Toronto. The title of this year’s event was “Moving Towards Aggregation”, and after hearing from the multitude of speakers, panellists and participants on the day, it quickly became obvious just how far the market has moved in that direction and how far there is left to go.
The first speaker of the day was Kirk Simpson, CEO of Wave. While the story of Wave’s success is extremely impressive, Kirk demonstrated how new players are entering the market and the threat they pose to incumbent players by focusing on another runaway success story – Square. Originally starting as a payment acceptance provider, Square has since moved into lending and payroll and has applied for a banking licence.
If it successfully acquires this license, it will be able to meet all of the payments and banking needs of small businesses, and this could potentially mean that an SME will never need to look beyond Square to meet their banking needs. While Square is moving in the retail market, Shopify is making similar inroads into the online banking space and Wave is doing the same for service-based businesses. It quickly became evident that traditional banks need to pay close attention to these players, or else risk never even entering SME customer consideration.
Next, we heard from Brian Merrit, CEO and co-founder of Seed, a mobile-first online SME bank in the US. Seed was started as a result of demand from SME owners – while 90% were being served on digital platforms, 74% were unhappy with these platforms, and the majority were considering switching, which suggested a hunger for a better online banking experience. What struck me most about Brian’s talk was his great advice on the Build/Buy/Partner conundrum, and which route banks should go down when dealing with Fintechs.
"The ability to provide benchmarking was also identified as a key area for business assistance, and being able to identify the behavior that differentiates successful and unsuccessful businesses and inform small business owners how to build success."
While building internal solutions gives providers the most control in the long term, it requires a cohesive long-term strategy to be successful – something all too often lacking in a world where changes in managers often resulted in changes in focus and direction. For those looking to partner, the risk comes from sharing the customer - Partnering can be effective as a lower risk, lower cost alternative, but can also bring challenges with objectives between the partners diverging. Buying is often the best solution, unless you cannot justify the risk or cost, or if you feel you can do it better internally.
Following Brian’s presentation, we had our first panel of the day, titled “Tools to encourage growth of SMEs beyond funding”. I was again impressed by the capabilities and potential offered by the Wave platform – by leveraging customer analytics, Wave could identify borrowing triggers and potential cashflow shortfalls for SMEs before they actually occur, and offer lending solutions to these businesses before they realize they need a loan. The ability to provide benchmarking was also identified as a key area for business assistance, and being able to identify the behavior that differentiates successful and unsuccessful businesses and inform small business owners how to build success.
Our next speaker was Jennifer Reynolds, President and CEO of the Toronto Financial Services Alliance. Jennifer talked to us about the role of Fintech in the Canadian SME market, and the effect of regulation. What stuck out the most was just how burdensome legislation and compliance is for the average Canadian Fintech – often they do not know which legal entities have jurisdiction across different areas that affect the company, and don’t have the scale to invest in dedicated legal compliance in order to navigate these potential minefields. Jennifer identified key areas that the government could address in order to foster innovation in the Fintech space, including the need to adapt to changing market dynamics as well as the need for a policy lead in Canada to facilitate Fintech development.
Next, we heard from Robert Gellar, the head of Financial Services for Facebook. It quickly became obvious throughout Robert’s talk just how integral social media platforms had become to engaging with small business decision makers (BDMs) in Canada – they spend more time on Facebook and are more likely to engage with the platform than other users. Robert shared with us several examples of how companies had effectively designed engagement tools to reach BDMs and other customers via Facebook. He highlighted the importance of removing friction in the customer journey, and the importance of providing a world-class mobile experience (which doesn’t necessarily have to cost the world!).
We then heard from RFi Group’s CEO, Charles Green, who spoke about the importance of SME payment relationships, the value of providing integration to improve efficiency, as well as building digital engagement. Most importantly, he provided evidence that investing in winning payments relationships and building digital engagement can help banks to win more profitable customers as well as improving engagement, which can help build support for investing in these platforms.
"Hearing summaries of the discussions from the other two groups, it seemed that Canadian merchants would need to be the instigators of payments change, but ultimately it would be the consumers that drove real, lasting change, and Canada had a long way to go in terms of facilitating the growth and adoption of Fintechs."
Our second panel sought to answer the question – has business funding lost the human touch? Several key areas emerged over the course of the discussion. Firstly, the importance of analytics and data, and the extent to which open banking and data sharing would help catalyze growth in business lending. Secondly, the theme of regulation emerged again, and how a unified view of what’s permitted in terms of data sharing and privacy legislation would supercharge the business lending sector. Finally, the question of whether the business lending sector required education or transparency resulted in a draw – both would be necessary to really engage with SME borrowers, and improvements in financial literacy would also need to be matched with more transparent, easier-to-understand lending.
Next, our third panel looked at how to enhance the world of borderless payments. What again emerged as a key theme from this section was the importance of data – this time in terms of the amount of data that could accompany electronic transactions. This is major reason cheques are still so prevalent among Canadian SMEs, and they will continue to linger until more data could be sent along with electronic payments. What I found to be the key theme of this session was that no one bank, institution or fintech is going to solve the payments problems faced by SMEs, and winning solutions will require intense collaboration to be successful.
Our final talk of the day was from Jeremy Fisher, the Senior Product Manager at Securefact. Jeremy walked us through the customer acquisition and servicing journey, and focused on the role of compliance in the customer onboarding journey. I loved Jeremy’s description of the Tim Hortons test for customer onboarding – can a small business customer open an account while sitting in a Tim Hortons with nothing more than their phone, wallet, and what’s in their head? Jeremy’s talk had 3 key takeaways; providers need to take a critical look at the customer onboarding journey; setting the right objectives is critical (and ‘digital’ isn’t an objective, it’s a means to an end!); and finally, success is a matter of adopting the right technology to meet business needs.
The audience then split into three groups for the final sessions of the day; roundtable discussions looking at three distinct but equally fascinating topics. I was truly disappointed that I wasn’t able to be in three places at once to hear the answers to the three different questions: What role should banks actually play in SME banking?; Who needs to drive innovation in payments – merchants or consumers?; and How does Canadian uptake of Fintech compare? I had the privilege to lead the discussion on the first topic and was grateful to hear the thoughts of several of Canada’s leading institutions in the space.
What came out most strongly was a topic reflected on extensively over the course of the day – the role of data and analytics, and how it can be leveraged to provide a better, more compelling SME banking experience. Hearing summaries of the discussions from the other two groups, it seemed that Canadian merchants would need to be the instigators of payments change, but ultimately it would be the consumers that drove real, lasting change, and Canada had a long way to go in terms of facilitating the growth and adoption of Fintechs.
With that, the day was over. It was completely fascinating from start to finish, and I would like to take this opportunity to thank all of our sponsors, speakers, panellists, delegates, as well as my colleagues at RFi Group for their hard work in making the day such a resounding success. For those of you that weren’t able to join us, I hope this recap has helped give you an idea of the richness and depth of discussion on the day, and I await the 2019 event with bated breath.