B2B Payments

In Canada, SMB Shifts Signal Big Bank Challenges

Up north, SMBs are looking beyond the “Big Five” for banking business. CFIB’s Doug Bruce details the trends and challenges that lie before the biggest banks, as inroads are being made by credit unions and even alternative online lenders.

Some of the biggest banks in Canada may want to re-examine their standings among small and mid-sized businesses.

Data released last week from the Canadian Federation of Independent Business (CFIB), logging more than 109,000 members across its SMB roster, shows some movement away from several of what is known colloquially as the “Big Five” on the part of small and mid-sized businesses. And they are moving toward a number of lending alternatives, including credit unions and — though still in their nascent stages — online lenders.

Royal Bank still has the biggest share of SMBs — as measured by SMB customer count — at 18.5 percent, down a bit from the 21 percent that it saw at the beginning of the Millennium. Conversely, Scotiabank bumped its share up 6.7 points from 2000 to 2015, up to 17.9 percent.

In an interview with PYMNTS, Doug Bruce, vice president of research at CFIB, said that, as the banks have seen some slippage over the last several years, credit unions have managed to boost their share of SMB business, from less than 8 percent to more than 11 percent, as noted over the aforementioned decade and a half. “SMBs are not jumping ship [in Canada] over the fees that are being charged” by the dominant players in traditional lending but rather “the value of the service they were getting with those fees.” Credit unions have managed to gain increasing consideration from SMBs and have a share that exceeds banks such as BMO and CIBC.

Among the reasons why credit unions may be seeing traction versus banks, said Bruce: They operate as not-for-profits and, in Canada, are not driven by the same provincial regulations as those that govern the banks in terms of expansion efforts. In addition, with less focus on the bottom line, the lending and underwriting process may be relatively smoother. Bruce noted that the lending process for SMBs (echoing sentiments seen in other countries) can be a frustrating one through traditional channels, as a several-month process of applications, face-to-face meetings and other hurdles may ultimately boil down to rejection for financing that would typically cover working capital needs. Thus, some online lenders are getting renewed activity and inquiries from SMBs (though not within the purview of the latest CFIB report), even as SMB owners value face-to-face meetings with lending officials (and, as Bruce noted, value continuity in those relationships).

Forthcoming reports from the CFIB, said Bruce, will focus on financial institution services in Canada, said the executive.


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