Small business in Canada: the benefits of combining faster payments with payments data

Payments Canada recently connected with Dan Kelly, President and Chief Executive Officer of Canadian Federation of Independent Business (CFIB), to learn about the impact of COVID-19 on Canadian small businesses, the rapid acceleration of digital payments, and the benefits of combining faster payments with payments data.

CFIB has been conducting surveys with its members to discover how COVID-19 is affecting independent businesses. Can you share highlights on the feedback?

The main message is that the impact of the pandemic is anything but over. The economic impact of wave one is very real and ongoing. Our most recent study projected that it will take businesses at least a year and five months to get back to normal sales. Our study also revealed that at the six-month mark only 70 per cent of businesses were fully open, with 30 per cent reporting a return to normal sales, and 42 per cent a return to the same staffing level as pre-pandemic.

Our study results further revealed a big shift in commerce from small to large, and independent to multi-national. There is no question that we’ve seen a giant uptake in e-commerce. While all of these changes were already occurring, we’ve seen a rapid increase. Add to this, a change that’s occurring in consumer behavior imposed by the forced shutdowns. Take the example of a consumer who frequented their local hardware store before the pandemic. As a result of closures, this person was pushed to either shop online or wait in line at a larger store. This type of consumer behavior has created an uneven playing field for independent business owners, and it will be a challenge to reverse. 

What role can the payments ecosystem play in supporting small businesses to navigate through these challenges?

Attention to the cost of payments is a big factor. There was progress on this in late spring when we saw a reduction in credit card processing in Canada, which was well-received as it correlated with the growth in credit card use. Our July 2020 study revealed that independent businesses were experiencing a 35 per cent increase in credit card use, 24 per cent growth in the use of debit, and a 35 per cent increase in the use of e-Transfer. In comparison, businesses reported a 38 per cent reduction in cash use and a 19 per cent reduction in cheque use.

There is also a need to support the increase in businesses that are moving to online. To date, we’ve seen rate changes for the bricks and mortar experience, but not necessarily for e-commerce. For businesses that are online, keeping the cost of card-not-present transactions low is going to be critical.

The final point I’d highlight is that the availability of faster payments can’t come soon enough for businesses, especially for business-business payments (B2B). Looking ahead, we need to make sure we take advantage of faster payments methodology so that all businesses have access to more low cost, B2B payments methods. 

You touched on the opportunity faster payments can offer. In 2022, Canada will introduce a new real-time payments system, the Real-Time Rail, that will support irrevocable, real-time payments travelling with payment information. What advantages will this combination provide?

For small businesses cash flow is key, which is dependent on funds clearing fast. Also critical is access to data so that businesses can be prepared in the event of an audit. One of the reasons businesses use cheques is because there is a paper trail that they can rely on for an audit. Another option, like a credit card statement, doesn’t have enough detail and often will be dismissed as evidence of payment history due to this lack of detail. It’s because of this dependency that cheques remain a dominant payment method for small and medium-sized businesses to pay each other.

Most recently, this need for payment information was highlighted by the government’s emergency funding support programs as many of the programs were based on the percentage of sales decline. In some cases, these programs are now being audited and businesses need to be able to demonstrate what’s happening quickly. This is why the work being done to modernize payments can really help as it will enable businesses to have the information required for an audit readily available.

Payments Canada released a study in May that highlighted how the pandemic has accelerated  Canadians’ shift towards digital payment methods. How is this trend impacting Canadian small businesses?

There is a big opportunity now for businesses to move to digital. We’ve had things like mail strikes in the past that have pushed businesses to digital, but we’re seeing now how digital payment methods can be used in creative ways to grow a business. Take the example of a hair salon who is now accepting e-Transfers for doorstep deliveries of cases of shampoo. A creative solution for contactless shopping. 

What we’re seeing today is that businesses that have been hesitant to use digital payments before are now making the move. I’d predict, given the length of the pandemic, a possible positive coming out of this will be businesses creating new habits. It’s this habit change that highlights again why more than ever there needs to be a focus on the cost of these alternative payment choices. 

Overall, the pandemic has pushed up Canadians’ adoption of new ways to make payments and, as mentioned, it’s sped up small businesses willing to accept these types of payments. It takes a lot to attract consumers to visit your website or your store and the last thing you want is to frustrate them when they are ready to make a payment.