Small and medium-sized enterprises (SMEs) make up the vast majority of Canada’s business landscape, yet they remain chronically underserved by traditional banks.
In this interview, Peloton Technologies co-founder and CEO Craig Attiwill explains why fintechs are increasingly focusing on this diverse and underserved segment—and what stands in their way.
From regulatory roadblocks and legacy infrastructure to the promise of open banking and real-time payments, Attiwill shares a candid look at the challenges and opportunities shaping the future of SME financial services in Canada.
Peloton’s been operating from Vancouver Island for more than a decade, quietly branching out across the country and capturing a fair share of the SME market.
Craig, why are so many fintechs after the SME market? What’s so appealing?
CA: First of all, they make up a huge portion of the business community. Almost all of it. Despite that, they have been underserved by larger financial institutions. That’s because they don’t fit between the goal posts of traditional banks. Their needs are more complex than consumers, but they don’t have the resources to operate like a large corporation. Plus, they are very diverse and have different risk profiles. It’s difficult to have a one-size-fits-all solution for a convenience store, a SaaS company, or a law firm, for example, all of which could be classified as a SME depending on their headcount or revenues.
But these businesses still need payments, loans, credit cards, accounting integrations, treasury services and investment opportunities. And they deserve to have products that are tailored to them. That’s where fintechs come in.
You talked about the banks’ challenges in serving SMEs. How do fintechs get around those challenges?
CA: Fintechs face the same challenges, and I would argue even more.
We have to be strategic about how we manage the size and diversity of the portfolio. Really understanding your target market and prioritizing your efforts – particularly when you are a small or early-stage fintech – is key. If you don’t have that focus and a measured approach to experimentation and change, you can easily get lost.
At the same time, fintechs in Canada face a seemingly never-ending uphill battle, just to offer financial services. We remain at a disadvantage so – besides running our businesses – we are always working around a system that excludes us.
What needs to change so that SMEs can be better served?
CA: An open banking regime, which many of Canada’s global peers have already implemented, and access to central payment systems would create more optionality for SMBs and a more level playing field for fintechs.
Singapore, which ranks globally as a top fintech hub, gave fintechs access to core payment systems four years ago and, as far back as 2017, began adjusting regulatory frameworks to enable fintech innovation. This leveled the playing field and allowed fintechs to offer competitive payment services without relying on partnerships with traditional banks.
Isn’t Canada making progress on this with open banking and real-time payments?
CA: Yes, change may be on the horizon in Canada. But, Canada needs to analyze the steps of Singapore and other fintech leaders like it – the UK and Australia – and get moving.
Our government has been talking about open banking for eight years, but we remain in the early stages of planning. Another topic of conversation in that same time frame has been the launch of a real-time-payment system (RTR). Though we will be the last in the G20 (Singapore’s two faster payments systems, FAST and PayNow went live in 2014 and 2017 respectively), it looks like a Canadian RTR is coming soon, though access for non-bank participants still remains unclear.
In the absence of these foundational developments to enable competition in the Canadian financial services space and better serve SMEs, fintechs still have to rely on partnerships with traditional banks and innovate on credit card rails rather than have direct banking access. This creates a multitude of challenges that are likely worth a whole other article!
What can fintechs do in the meantime to serve the SME sector?
CA: Many of us are doing all that’s required to meet regulatory standards and prepare for the eventuality of wider access to payment systems and open banking. I think we all know these developments will be the tipping point to greater innovation in the sector. We see it amongst our global counterparts who have these foundations for competition already in place.
It’s also important to maintain a collective voice for our sector and keep the issues top-of-mind with government and decision makers. Entities like Fintechs Canada and Build Canada have been critical to this, for our industry and beyond.
Okay, so who will win the race for the SME sector?
CA: The good news is that we all likely will!
The sector is huge, the needs are diverse and they are constantly growing and changing. Fintechs are really good at zeroing in and managing the risk profiles of their specific segment. As a result, there is room for many winners in this space, and not in a “everyone-gets-a-participation-ribbon” way.
You still have to have a good product. You still have to understand your client base and service them accordingly. You must operate safely and securely. And you should be preparing for the future. In that case, I think we’ll continue to see many boats afloat in the SME tide.
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