In a series of interviews with Smarter Loans, Greenbox Capital CEO Jordan Fein discusses all things alternative business funding and small business lending. In this short clip, Jordan explores FinTech companies in Canada and the differences between the Canadian and US lending markets, from merchants and borrower behavior to brokers, banks, and how new tech is fueling innovation in Canada.
Watch the video, or keep reading below for a full transcript.
SL: In terms of what you’ve encountered…I know in Canada, we love to do comparison narratives, especially with our neighbors down south. You can talk about clients, but also the larger landscape itself, the alternative funding scene here versus the US. Perhaps you can talk a little bit about tech as well and how FinTech fits into that. But where are we in Canada in relation to what is a very heated, alternative lending scene in the US?
JORDAN: There’s less lenders in the Canadian market, and there’s way more lenders and funders in the US market. How does that change things? I don’t know if that changes things too much. I really do think that the behavior lies—like the stacking, all that stuff—ultimately lies with the behavior of the customer or whether the broker can convince them. There’s some brokers that will convince them to take more money, which is absolutely evil because that’s not necessarily good for the business, but then there’s some merchants who will be reckless, right, in the United States. And you don’t see that as much [in Canada]. That is the big, big difference.
In terms of…when you talk about the difference of the markets, brokers in the United States demand these very large commissions and it just wasn’t developed…it doesn’t exist that way in the Canadian market. We do offer larger commissions, but there’s other companies in the Canadian market that do direct. They do direct as a big part of the business, and they do brokers as well. They don’t pay large commissions. They pay much smaller commissions. And I think that this is a very touchy subject because brokers obviously want the largest commissions, but there’s a certain point we have to cut that off and it’s not good for anybody. It’s just too much. The economics of the deal becomes too negative for the business and ends up hurting everyone.
Why does it hurt everyone? The broker makes a big commission to start, but the lifetime value of the customer is now shorter because their propensity to default is higher than the possibility of renewing that customer, and the portfolio of customers goes down. So I do think that the Canadian market is better well built in terms of how it’s structured with respect to commissions, to brokers. That’s a nice advantage that Canadian market has and I hope that never changes because it’s good for everyone. It’s good for the business. It’s good for the broker, whether they believe it or not. And it’s definitely good for the funder. The funder always wants what’s in the best interest of the business. You always want your businesses to survive and do well. If they’re doing well, you’re doing well. We’re not taking an equity stake in the company, but it’s pretty darn close. You know what I mean? Making a debt position at these size companies is very darn close to making an equity position and really betting on the company to do well.
Why does it hurt everyone? The broker makes a big commission to start, but the lifetime value of the customer is now shorter because their propensity to default is higher
than the possibility of renewing that customer, and the portfolio of customers goes down. So I do think that the Canadian market is better well built in terms of how it’s structured with respect to commissions, to brokers. That’s a nice advantage that Canadian market has and I hope that never changes because it’s good for everyone. It’s good for the business. It’s good for the broker, whether they believe it or not. And it’s definitely good for the funder. The funder always wants what’s in the best interest of the business. You always want your businesses to survive and do well. If they’re doing well, you’re doing well. We’re not taking an equity stake in the company, but it’s pretty darn close. You know what I mean? Making a debt position at these size companies is very darn close to making an equity position and really betting on the company to do well.
That is on the broker side, so then let’s talk a little about the
“The funder always wants what’s in the best interest of the business. You always want your businesses to survive and do well. If they’re doing well, you’re doing well.”
FinTech side. It’s a much smaller country compared to the US of course, right? But I’m so surprised by the different innovation and technology that does exist.
The startup that I have is a software product that is going to help the lending industry. It’s going to help facilitate the funding process and take away a lot of inefficiencies, bring a lot of clarity, reduce operating expenses of lenders, and increase efficiency of what the brokers have to deal with when dealing with customers. And the borrower or the merchant is going to have a more seamless experience, not having to fill out all of these forms and get all these bank statements. It’s a product that’s going to bring efficiency and transparency to the industry.
The companies that I’ve seen that are also involved in the FinTech space [in Canada] have been super, super impressive, super impressive. So I think that the Canadian market, while smaller, still proportionally has amazing innovation happening in the FinTech space for the different products. There’s so many different products that are up there. There’s risk management tools up there in the Canadian space that we’ve looked at. There’s data aggregation tools that we’ve looked at in the FinTech space, and there’s much more, there’s so much more. I think that the Canadian market is right there.
They’re also developing their APIs, the banks are developing their APIs. And I will say one last thing on this. I actually believe the advantage in the Canadian market compared to the US is with the banks. In the US, there’s 21,000 banks and the top 10 banks control 68% of the market. The top four or five banks
“The Canadian market, while smaller, still proportionally has amazing innovation happening in the FinTech space for the different products.”
control like 95% of the market. So their ability to increase their technology to be able to better serve business in Canada, consumer and business, through technology is going to be a lot easier because of adaptation with banks and different players like that. Because they hold the data of what the fintechs and the funding companies need, and they’re building out those APIs.
The companies that I’ve seen that are also involved in the FinTech space [in Canada] have been super, super impressive, super impressive. So I think that the Canadian market, while smaller, still proportionally has amazing innovation happening in the FinTech space for the different products. There’s so many different products that are up there. There’s risk management tools up there in the anadian space that we’ve looked at. There’s data aggregation tools that we’ve looked at in the FinTech space, and there’s much more, there’s so much more. I think that the Canadian market is right there.
About Smarter Loans
Smarter Loans’ mission is to help Canadians make smarter financial decisions through educational resources about Canada’s most innovative financial products and connecting Canadian consumers and businesses with top financial companies in a fast, safe, and convenient way. With a focus on both personal and small business lending, Smarter Loans compiles company profiles for top financial companies in Canada, offers loan finder tools to make it easy to find the right loan, and shares educational content that promotes responsible lending in Canada. Visit Smarter Loans to learn more.
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