Transcript of The PayPod: Episode 2 - Small business payments with Dan Kelly and Siena Dixon 

In this second episode, Justin is joined by Dan Kelly, President & CEO of the Canadian Federation of Independent Business (CFIB), and Siena Dixon, Head of Marketing and Communications of Ollie Quinn, to discuss small and medium sized businesses’ payments needs. The payments landscape continues to evolve, making it more important than ever for businesses to keep pace. However, a recent Leger survey conducted by Payments Canada noted that Canadian businesses still use credit cards, cash and cheques as top payment methods. The trio discusses how we must continue to modernize the ecosystem to help Canadian businesses grow, keep customers, clients and stakeholders happy as well as keep pace with other countries that have already made friction-free payment options a top priority. Listen to The PayPod: Episode 2.



Justin Ferrabee: The landscape of payments continues to evolve, making it more important than ever before for businesses to keep pace. However, Canadian business, both small and large, are still limited in the payment methods that are available to them create easy, positive and compelling customer payment experience. We must continue to innovate and modernize the payment system in order to help our businesses to grow to keep their customers happy and to keep pace with other countries around the world, who have already made friction free payments a priority.

Hi, I'm Justin Ferrabee, chief operating officer of Payments Canada and I'll continue to be your guide on the PayPod podcast, a multi-episode series of anything to do with Canada's ambitious payments modernization mission with a special focus on the parts most relevant to the country's business community.

On the last episode, we discussed modernization within the context of larger companies in Canada. Today, we look at the quiet, ambitious and determined members of our business community in looking at smaller and medium sized companies. We'll talk about some of the challenges that many have experienced with the lack of useful payment methods. Ultimately, today's businesses want more choice for their customers at point of sale and more options for their back office payments to suppliers and vendors that are, of course, safe and secure.

Joining me now to dive deep into this is Dan Kelly, president and chief executive officer of the Canadian Federation of Independent Business, an advocacy group with 110,000 Canadian independent businesses. Excellent to be with you on the PayPod.

Dan Kelly: Happy to be here. Your intro captured exactly right. There is interest and, in fact, even excitement about the idea of some innovation coming to the payments industry in Canada. For a long time, the payments industry has been largely protected and insulated and owned by a few players, and Canadian small and medium sized firms are interested in seeing a lot more diversification. A lot more players and a lot more methods of making payments, facilitating payments. We've certainly got a long way to go and a lot of Canadian small firms are aware of some of the alternatives that their counterparts in other parts of the world have that just don't exist, it seems, in Canada.

Justin Ferrabee: Also, in about 10 minutes, we'll be speaking with another featured guest on this episode. Siena Dixon, the chief marketing officer of Ollie Quinn, a value-priced eyewear retailer operating globally.

Okay, let's get into it. As a recent survey commissioned by Payments Canada revealed, more than 80% of Canadian small businesses want more payment options and want the industry to keep evolving. In the context of small and medium sized companies, and in your experience working with independent businesses, can you describe to us the challenges that many are experiencing currently when it comes to payments between both their customers and their suppliers?

Dan Kelly: There are a variety of challenges that Canadian small and medium sized firms are facing. The challenge, of course, is most obvious I think better studied among those that are making retail payments, payments to end consumers. The challenges there include certainly cost. That certainly is the thing that we hear more than anything else from small and medium sized firms, is the cost of making credit card payments in particular in Canada is sky high, much higher than in other parts of the world. On the debit card side, I think Canadians are in pretty good shape. We are large users of debit cards and the costs are fairly reasonable for that so that is a good thing.

But I think where the real rub for a lot of small firms comes when they're making business to business payments. That's an area that I think is very underserved in Canada. Yes, we do have electronic funds transfers and some means to that. Interac e-Transfers are emerging as a more popular tool-

Justin Ferrabee: What would be an example of a business to business payment that you're talking about?

Dan Kelly: Yeah, I was just saying the electronic funds transfers are increasingly popular in Canada. We've certainly seen an uptick in that from a B to B perspective. Interac e-Transfers, interestingly enough, for very small business is becoming more popular. One of the roadblocks that we've seen is there still is a lot of money that goes ... A business check is written out, put in an envelope, a stamp is put on it and it's sent by Canada Post. With all the technologies and all the innovations we've had in Canada over the years, that still remains the preferred method of payment for Canadian small and medium sized businesses, especially when they're paying suppliers of services larger amounts of money that is being transferred back and forth.

Justin Ferrabee: Why do you think that is?

Dan Kelly: Well, the number one reason Canadian small firms tell us that they prefer checks at the moment, not that they're in love with checks but they believe it's better than the current options that they have, is the fact that it is certainly perceived as being lower cost. Using credit cards as a method of payment is viewed as being far too expensive. Of course, Canadian small business owners love paying people with their credit cards for the same reason Canadians love to pay with credit cards and that is they're as addicted to rewards points as anyone else. But to receive a payment, Canadian small firms absolutely hate credit cards as a method of payment. They want to see other forms of low cost payments and checks remain the best one for that.

The other reason that I think it's forgotten in a lot of the discussions that have happened around payments is the hidden reason why Canadian small firms like checks as a method of payment and that is that there is some record keeping, automatically, that comes with that. That can be very helpful to you when you're facing an audit, for example from the Canada Revenue Agency. The fact that you've got a paper check, there's a paper trail associated with that payment. An invoice is sent in the mail and then a paper check sent back in return, that really does exempt you, help you when you're finding your expenses questioned by the Canada Revenue Agency.

A lot of the electronic methods of payment, I think, have not necessarily gotten that right or if they have, they're more targeted at the large firm level, not necessarily at the [crosstalk 00:06:18]

Justin Ferrabee: Or they have a big system that matches that kind of stuff.

Dan Kelly: Indeed. So that has been one thing that I think is the reason why I'm excited, personally, about having some new innovation in the payments industry. The B to B sector I think has been incredibly underserved in Canada and yes, hold times are an issue for those payments, but the record retention, record keeping requirements I think are sometimes a forgotten issue that affect the way Canadian SMEs pay each other.

Justin Ferrabee: Is there any component of cash flow management in that? I know that as a small business you've got to really manage your cash when it's coming, with bank holds and other things like that. Is there an element of that?

Dan Kelly: Absolutely. The hold times in Canada, while they have been made over my lifetime a little bit tighter, they still are significant and much longer than in other parts of the world. If you're running a small firm, you're typically running it fairly close to the line so having a big invoice that's hung up for ... Sorry, a big payment that you're expecting hung up for an additional three or four days, gosh that can really hurt when you have people, potentially even your employees, counting on you to have the money available to pay them.

So hold times are definitely an issue for small and medium sized firms. I'll take you back to some of the postal strikes, though, in Canada as a good example of why we need this kind of innovation. Many are absolutely surprised that CFIB for example is out there screaming and yelling during a postal strike because many Canadians have said, "Well, wait a minute. I don't depend on the mail so much anymore. So why are small businesses so concerned when there's a disruption in postal services?" The main reason we hear from members, yes, there are some that are shipping their products through Canada Post and we do here from them, but they have some other alternatives.

The group that we hear from first, every time there's a postal disruption or a threat of a postal disruption, are small businesses who have money stuck in the mail. In fact, during the last postal work disruption, Interac e-Transfer actually saw a big increase in their usage amongst small and medium sized firms because they kind of use it as an emergency way of paying a supplier while money was essentially frozen or threatened to be frozen. That's a good example I think of why this innovation is so important.

Justin Ferrabee: If you were to take out ... because that's a very good example of the dependency on the legacy way we do this, on the postal service. If you were to take that out, is there any aspect of this that they just don't care? Small businesses people. It kind of works. It's not perfect but it kind of works. It gets down. You guys are all talking about payments. I actually don't care. Just make it cheaper.

Dan Kelly: Sure, there are some that do say that. We've certainly surveyed our members on that and about a third of our members said that they just don't really want to change. They're happy with the payment system that they have today. But that's a third of small and medium sized firms. Two thirds of Canadian SMEs say that they do want to see some form of innovation and they're excited about that, according to our data. The obstacles, though, I think to increased use of electronic payments methods has been cost. That's been the number one obstacle and if we can ensure that as we modernize the payment system, make it faster and have more alternatives in place, if we can ensure that the costs are kept reasonable for small and medium sized firms, I think we're likely to have a lot more success.

What worries me though is, while we're building out the infrastructure here, if some of the same players that have perhaps dominated the credit card payments industry in Canada end up being at the top of the food chain in some of these new techniques, gosh we could end up just derailing the whole process because small firms won't use it and they'll stick with their tried and true and, at least perceived, low cost methods of payments.

Justin Ferrabee: Because we look at some of the result from our research as well and there's a lot of interest, particularly in new small businesses and when we look at the market, you see a number of new entrants like Square and Shopify and others who are coming in that are making payments more accessible. Where they wouldn't even have been accessible for a micro business or someone in the gig economy, they're now available. So there's innovation happening there where the payment's becoming quite seamless. Expensive still, but seamless when you look at the on scale. Are you including that constituent in your group or is that sort of a new emerging area?

Dan Kelly: Sure, but a lot of innovations that we've seen to date have been basically add-ons to the existing infrastructure. So they may have a new feature to it. They may make it a little bit easier for a small firm, but they're not necessarily the big innovations that we're counting on from payments modernization as a whole. In fact, with every new player, you mentioned for example Square in the mix, or PayPal or some of these other players, they usually are cost plus. So they add to the cost of the existing system, making it even more expensive and given that the number one obstacle for small firms to use other forms of electronic payments is cost, I'm not sure necessarily sometimes if we're further ahead.

That doesn't mean that small firms don't welcome some of those innovations and that they don't add other value to the process, but we're looking for the big, big innovations that I think will be coming soon. Not these tearing and changing the form factor or making it a little bit more accessible to the firms that are smaller or micro sized.

Justin Ferrabee: What are some of the examples of the things that you would really like to see that you've seen in other places?

Dan Kelly: The main thing that I guess ... One of the biggest areas that I hear from businesses is related to making a payment with some form of invoice data coming along with it so that you would be able to track that for that very issue of records retention requirements for CRA purposes etc. That, I think, in giving more options for business to business payments that will help you in terms of tracking with the invoice data and then the payment data together. If we can get that right, I think that we would have a much easier time of convincing small and medium sized firms to give up their checks and move to these new factors. That to me is the biggest piece that we're excited to see.

Justin Ferrabee: Not as flashy but a really big one.

Dan Kelly: No, absolutely, and actually it's the unsexy stuff that I think is probably where small and medium sized firms are paying more attention. Yeah, we've all seen in restaurant that there's a coolness factor to using some new form of technology to make a payment and some firms love that too to give their end consumers more options or something a little bit different than they're used to, but the bread and butter of what small businesses want is ensuring that at a B to B level, that they've got some new options. Especially when they're moving large dollar amounts, and for a small business a large dollar amount might be an invoice of $5,000. I just want to put that into context.

Justin Ferrabee: Payments Canada is an infrastructure, so we're down quite deep in the payment system and what we're trying to do is create something that will ... you said in one of your questions that the debit was working fairly well. It's working because it's got a fixed price and all that in contrast to the credit cards. We're trying to build the realtime rail that will be like debit but better. More value added from information availability, lower cost, more ubiquity, easy to use. Innovation can happen on top of that largely for this constituent of small business because they need it, they use it and their livelihoods depends on that.

So that's our goal, but to your point, we build the infrastructure, it goes through the middle commercial layer of people who serve businesses and then it arrives at the small business so there's always a chance that the crystal can reflect the light and it will become something different on the other end. Hopefully it will be a rainbow, but that's our goal.

Dan Kelly: No, and look, what you're describing sounds absolutely right and exactly what Canadian small and medium sized firms want from Payments Canada, want from the payments industry. But as we both acknowledged, it's where does it go after that is the big concern for small firms and I've got to say there is a healthy skepticism on the part of a lot of small firms because to date innovation has generally meant higher costs. It hasn't meant lower costs and in most industries innovation and competition usually drive down pricing and create more options-

Justin Ferrabee: Not the reverse.

Dan Kelly: And not the reverse and this industry has been a bit of an anomaly. It's kind of been the reverse of that. What I'm hoping is that what you're talking about leads to true competition and innovation in the industry, the kind that will create a whole bunch of new options that small firms haven't had access to before, that consumers haven't had access to before. And along with that mean that there will be some potential costs reductions associated with that, compared to some of the incumbents in the credit card industry or in the payments industry more broadly. That's really where we hope this to be going.

Justin Ferrabee: Your continued diligence and vigilance in making sure that it does happen will be great. We're all trying to get to that end goal so we'll have to keep our minds focused on that.

For our listeners interested in learning more about some of the key findings in the Payments Pulse, small business edition, you can view the final report at I'm Justin Ferrabee, your guide, with me is Dan Kelly from Canadian Federation of Independent Business. We've been exploring how the evolutions of payments in Canada will impact small and medium sized businesses. Particularly as Dan discussed how business owners are truly invested in the continued evolution of the payments industry. As the Payments Pulse survey revealed, a staggering 81% are willing to integrate new technologies into their operations now, if made available.

Here to provide some additional context from the perspective of an independently owned business here in Canada is Siena Dixon, the chief marketing officer of Ollie Quinn. Welcome, Siena.

Siena Dixon: Thanks, Justin. Great to talk to you.

Justin Ferrabee: Siena, building on what Dan shared earlier, can you illustrate for us and provide some specific examples about some of the challenges your company faces day to day when it comes to payments.

Siena Dixon: Absolutely. Payment operations has definitely been a tough area for us, particularly as we're grown rapidly in Canada and globally over the past few years. We've gone from a true startup to a small and medium size business, I suppose, you'd call us now. I'd argue that receiving and delivering on time, low cost, and traceable payments have continued to be one of our company's biggest challenges. I mean that in and of themselves as issues but also as it pertains to cashflow forecasts. During this time, really any stage of growth obviously anything that prevents or slows down the process of receiving money from our customers to our bank account is an issue.

But I think the cashflow forecasting is particularly crucial during this early growth phase when we need to showcase this operational solidarity, I guess I'll call it, to all of our stakeholders including investors. So that's certainly been a learning curve. From a more day to day standpoint, slow payment processing both ends, pending, receiving, can certainly cause a few hiccups along the way. We've met operational deadlines, marketing deadlines, which certainly does upset our supplier and partner relationship.

A prime example of this would be the time it takes to clear international wire transfer. As it goes, we're still operating in what I like to call a "just in time" inventory management style, aka we need products yesterday. Trying to make those shipping deadlines before major consumer events like a Chinese New Year for example is definitely an issue for us. Particularly as we prepare for the quite widely communicated product launches so it's time that we can't afford to waste because of those discrepancies between international payment operations.

Justin Ferrabee: That sounds like a lot to juggle for a small business that's going through growth. Have you seen this kind of thing before, Dan?

Dan Kelly: Absolutely. The concern for those that have operations across borders is even greater with respect to payments, so having systems that can talk to each other between Canada and elsewhere in the world would certainly be a huge innovation. That's where I think small businesses would be quite willing to innovate and pay for the innovation because there is a real dearth of good options for them at the moment. But just the day to day issues that a small firm has to deal with with respect to payment is significant. We can't also ignore the fact that every single day small and medium sized firms are having players in the payments industry knocking on their doors, telling them about their newest, latest, greatest innovation.

But small firms are incredibly frustrated and in fact I would say don't trust many of those players just because of what's happened with the history of the credit card roll out in Canada. There still is the legacy of some bad players that have been allowed to operate in Canada without any kind of constraint.

Justin Ferrabee: Siena, when you look at the complexity of your supply chain, you've got parts coming from around the world and they're going to different geographies, to different boutiques and stores in different geographies, and that's a very complex cashflow to manage. We understand the challenges with that as slowing things down and friction that exists and costs that exists and matching invoices and just making sure industry is where it needs to be and all the different challenges you have. That obviously sounds very complex and if that could be fixed that would be helpful or even modestly improved. What about your customer experience? What about the customer payment experience with point of sale terminals and how quickly and easy something is to be pay or not? The information and your relationship and their experience as they buy from you, either online or in your stores.

Siena Dixon: Yeah, absolutely. As I said, any delays between receiving and sending payments with our customers is absolutely crucial. About 30% of our customers are Millennials. They do tend to have a great eye for those creative, more innovative payment options. We want to be in a position to be able to accept all sorts of payments. As it stands most of our transactions are fairly small in comparison to other businesses, where the average spend if just over $150. Majority of our transactions are completed electronically in some form which is wonderful, but we are still limited to debit or credit cards.

We'd love to be in a position to be able to accept, whether it's cell phones or emerging areas technologies like blockchain or biometric based payments. Part of that is also to do with our branding, which is obviously my area so front of line for me, but part of our DNA in our brand is supporting creative community, so having the ability to accept methods that are maybe considered more innovative but obviously valid would be a wonderful opportunity to grow with our customers.

Justin Ferrabee: Siena, you've worked and operate in multiple companies. How does Canada stack up?

Siena Dixon: I was hoping / not hoping you were going to ask me that question. That's right, I've worked in the UK, Australia and now the US. It doesn't stack up too well, to be honest. I have noticed those transaction fees are enormous and those time delays are as well. They're some of the biggest that I've certainly experienced.

Dan Kelly: That's certainly supported by everything that small and medium sized firms have told us. Our membership has told us for a long, long time is that there are some real innovations that are happening elsewhere. We do have some bright spots, though, in Canada and I would point at our Interac debit system. That has been a real savings grace for a lot of some firms. They love getting a debit card as a form of transaction. The online version of that has not been great, but Interac e-Transfer is an invocation that I think a lot of small firms have welcomed because they know and trust Interac. Therefore they're more willing to do that. I think that that's something we need to explore. There has been a breakdown in trust among some of the players in the payments industry and the small and medium sized business community. It's going to take some work to get that back on track.

Costs have come down and that's been a good thing. The code of conduct for the credit and debit industry has certainly helped. I think move us forward, but as we build out upon the infrastructure that Payments Canada is working on, we need to make sure that all of the other tools that we have to ensure fair practices and ensure real innovation comes with driving down costs, that those things are considered too.

Justin Ferrabee: So Siena, we've talked about the benefit of a modernized world, if and when we're successful with that. What would happen if, for some reason, the modernization effort didn't proceed? What would that mean for you when you look at your portfolio of stores across different geographies? How would you view Canada?

Siena Dixon: It would change things quite dramatically. As it stands, Canada has actually ended up being one of our most successful geographies globally. That was somewhat of a surprise to be honest, just solely because of the population variances between the UK and the US, but we've had a fantastic outcome in Canada. If we weren't able to operate in Canada as efficiently as we are able to in the US or the United Kingdom, or any other geographies, then I think it would really disincentivize to grow here. I wouldn't be surprised if those operational decisions had an impact on where we continue to grow and probably reduce that growth in Canada.

Justin Ferrabee: Well, let's make sure we don't see that happen.

Siena Dixon: Absolutely.

Dan Kelly: It's a good reminder that, while we look at some of the innovations that need to happen on the domestic front, that making sure that these systems are able to integrate with our players around the world is an incredible important part of this too. That's not something that every small business is concerned with, but it is certainly something that we ... if we want Canadian companies to be players internationally, we should be ensuring that our systems can talk to each other, that money is not just made easier and faster to transmit within the country but also around the world.

Justin Ferrabee: You both know because, Dan, you work with 110,000 business and, Siena, you are building a small business. It's hard. It's hard to do it, it's hard to find customers, it's hard to serve customers, it's had to find products, it's hard to make the business work. There's a lot of complex things, there's a lot of risk you take personally. Having to fight the payment system shouldn't be one of them.

Siena Dixon: Hear, hear.

Dan Kelly: You got it. We've just come off a big year fighting with government. The last thing we want to do is fight with the payments industry. We've been through a decade of that and we're looking ... I will say that there has been a lot of change in the last little while and to the point that I was talking about before about trust having been eroded over the course of the past decade as some payments innovations have taken place. I think we're on a new footing. There has been a lot of change for the better.

Governments have stepped in and provided I think some rules of the game for the industry, more than they have in the past. We've seen the cost of accepting credit cards come down through some voluntary measures and the innovation that's happening at Payments Canada, I think should give small and medium sized firms a lot of reasons for optimism that things are getting better, that they're going to have true competition and that these systems will be able to better talk to each other and that as long as we're cautious about cost, I feel confident that we're going to see some really exciting things happen in Canada and that should help the Canadian economy too.

Justin Ferrabee: I can tell you from a Payments Canada perspective engagement and understanding of the issues by yourself, engagement and understanding of the issues by Siena and other small business is what is going to make this happen and is going to make it work. That commitment, that engagement, that willingness to understand the complexities, that willingness to push to make the right thing happen is what's going to make it happen.

So thank you, Dan, for your sound advice and comments and thank you, Siena, for offering a closer look into how small businesses like many others are being impacted by the payments evolution in Canada. That's all the time we have for this episode, but join me next time on the PayPod when we delve into the world of payments modernization and personal finance. This show is available at and join the conversation online using #modernpayments.