When the COVID-19 pandemic arrived in Canada in early 2020, small businesses were forced – more than ever before – to adapt to survive.

Now, as the focus shifts to recovery, new research from Payments Canada is shedding light on where small businesses have landed over two years later. The study, released in June 2022, explores the struggles, attitudes and behaviours of Canadian small businesses regarding payments and finance.

The research shows that while small businesses continue to struggle with cash flow and business spending, the tides are starting to turn in other areas, including access to funding. The study also reveals shifts in payment-related behaviour, including a move toward digital payment methods and an increase in the prevalence of fraud.

Caary spoke with Jon Purther, Director of Market Insights at Payments Canada, to dig into this data and what it means for small businesses.

“Access to business credit is also a critical lifeline for small businesses especially in times of economic downturn. During the pandemic, we saw many small business owners drawing from and exhausting their personal savings to keep their business running…”

Q: In your role you see a lot of data about payments and small businesses. What stands out to you the most from the results of this survey.

Overall, we’re seeing that Canadian small businesses are demonstrating resilience and continuing to adapt to changing market dynamics.

While many continue to navigate through financial, operational, and payment-related challenges because of the global pandemic, there have been a number of areas where these businesses have seen improvement, including sales, access to funding, and management of cash flow.

This is due to the easing of public health measures and lifting of public restrictions throughout the country beginning in 2021, which sparked a resurgence in economic activity brought on by pent-up consumer demand and an uptick in consumer confidence.

Q:  It sounds like there have been some improvements, but the research suggests cash flow management (27 per cent) and business spending (33 per cent) continue to be a struggle for small businesses. In your view, how can the financial services sector better support small businesses to help them manage cash flow and spend?

One way financial services can better support small businesses is through modern payment options. There are already some innovative options on the table through fintechs like Caary and other financial institutions, and payment modernization will introduce even more control, more convenience, more affordability and increased safety and competition.

Together with our partners, Payments Canada is developing Canada’s first ever real-time payment system – the Real-Time Rail – that is planned to go-live in June 2023. The new system will provide 24/7/365 payments that are faster, more convenient, safer and processed in real-time. That means that payment transactions are processed so that the person or business on the receiving end gets their money within seconds.

For small business owners, real-time payments provide more liquidity – so for example, it will allow businesses to pay their staff for the time they’ve worked immediately after their shift and minimize the time spent managing cash flow so they can focus on growing their business.

“The pandemic highlighted the convenience of everything digital including digital payments.”

Q: 14 per cent of small businesses report improvements in access to funding since the onset of the pandemic. How do you think more accessible funding can help small businesses to overcome some of the financial challenges brought on by COVID-19?

Easy access to funding is extremely important for small businesses. Our data has shown that since the pandemic began, small businesses have been impacted the most, and many had to rely on government funding as a result. This type of funding being accessible – and available quickly – could be the difference for a company staying in business or not.

According to the 2021 Canadian Payment Methods and Trends (CPMT) report, while the pandemic has had a negative impact on the value and volume of non-government electronic payments, it had an opposite impact on the value and volume of federal government electronic payments due to unprecedented emergency benefit payments to individuals and businesses. For the entire year, government direct deposits rose in value and volume by 49 per cent.

Accessible funding – and the ability to facilitate the fast, safe and convenient distribution of support payments – was key to ensuring these businesses could stay running and come out of the pandemic as a strong business.

Access to business credit is also a critical lifeline for small businesses especially in times of economic downturn. During the pandemic, we saw many small business owners drawing from and exhausting their personal savings to keep their business running, before eventually running out of money and having to close their business.

Having access to alternative forms of credit is essential to small businesses in overcoming the financial challenges brought on by unprecedented economic shocks like the COVID-19 pandemic. A good example of an alternative form of credit may be buy now, pay later (BNPL), a popular payment option in which consumers pay for their purchases at a later date through a series of payment installments.

Q: We continue to see small businesses moving away from cash and cheques in favour of digital payment methods. Your study reveals that cash use is down 33 per cent and cheques from deposit accounts are down 25 per cent. What are some of the benefits of digital payment methods that are attracting small businesses?

The pandemic highlighted the convenience of everything digital including digital payments. While we have seen a continued shift towards digital payments over a number of years in Canada, the pandemic definitely accelerated this shift.

Having options for the way in which people can pay is important in attracting and retaining customers. For example, if businesses only take cash, that’s going to eliminate a group of customers that may have possibly been interested in making a purchase. Being able to expand payment options — such as having an e-commerce site and using digital payments — will allow small businesses to expand their customer reach.

Our research found that about half of businesses perceive both e-commerce and mobile payments to be secure for their purchases, as well as secure ways to receive customer payments. Electronic payments specifically are also perceived to be more secure than paper and card payments. With many small businesses having experienced an increase in payment fraud attempts, the convenience and security of digital payments can also be alluring.

Q: The report indicates an increase in the prevalence of fraud. Do you have a few tips for small business owners when it comes to payments fraud?

It’s imperative that Canadian business owners and their employees remain vigilant. While our recent research shows that Canadian businesses and consumers appear to have become better equipped in protecting themselves against the risk of payment fraud, exercising caution and diligence will continue to be critical to help mitigate any fraud related risks.

One half of all businesses report that their employees make the effort to check the safety of an e-commerce site and go with trusted sites only when buying online. Almost 1 in 3 businesses (30 per cent) say their employees store their passwords on their smartphone, computer/laptop, or in an email, and another 30 per cent say that their employees tend to use the same password for all of their accounts.

When it comes to protecting themselves from payment fraud, small business owners should consider further educating their employees about cybersecurity best practices.

Jon Purther, Director of Market Insights, Payments Canada

Jon Purther is the Director of Market Insights at Payments Canada, where he leads the Strategic Foresight and Market Research teams. Jon has more than 25 years of senior management experience in forensic research and strategic marketing management, including domestic and international assignments. Prior to Payments Canada, Jon was Chief Operating Officer at CorbinPartners Inc., where he successfully led numerous integrated market research engagements, provided affidavit evidence / report submissions and appeared as an expert witness in matters before regulators and the Court.