Marqeta, Rippling join Canada’s small business banking battle | PaymentsSource

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Photographer: Cole Burston/Bloomberg

With Canadian businesses expressing a need for more and better services from their banks, two Bay Area firms sense an opportunity to sell corporate financial products north of the border.

Rippling — a San Francisco-based workforce management platform that provides HR, IT and financing to small and medium-sized businesses — has launched a Marqeta-issued commercial credit card in Canada that allows companies to automate card issuance, expense management and spending controls.

Rippling and the Oakland, California-based Marqeta are responding to an expansion in contactless payments for consumers and businesses in Canada and an environment that suggests banks' business clients are interested in switching financial service providers.

About 10% of business owners in Canada switched banks between 2019 and 2022, according to a 2023 report from the Canadian Federation of Independent Businesses , which added that Canadian businesses do not feel the service they receive from Canadian banks is "up to the standards they expect." That has attracted U.S. banks such as JPMorgan Chase , which is expanding its consumer banking operation to include products for small businesses.

It also leaves an opportunity for business-specific payment cards, according to Todd Pollak, chief revenue officer at Marqeta.

Contactless payments are commanding more share of in-store payments, according to a study published by Technology Strategies International. Sixty-three percent of in-store payments in Canada are contactless, totaling 80 billion Canadian dollars, according to the organization's 2024 Canadian Payments Forecast.

The Rippling card, which is issued by Marqeta and runs on Visa rails, allows Rippling's clients to offer commercial credit cards . Rippling underwrites the cards for its clients' employees, a use case that Pollak said most large Canadian banks will not address.

"The customer is two [steps] away from the actual underwriter or the [party] loaning the money," Pollak said. "If you are a platform [like Rippling], you're always going to be providing service to customers who are not directly tied to the financial institution … As a result, most of our customers are platform providers."

Most commercial banks are risk averse to this card issuance model, Pollak said, largely due to outdated technology that limits the bank from monitoring transactions in real time.

Marqeta could use this aversion to expand its reach in Canada, where it has operated for years. Marqeta operates in 40 countries and has been adding more platform companies to its roster of clients. In the quarter ended June 30, the credit card processing company signed a deal with Zoho, a software company that works with more than 700,000 businesses globally. Today, Marqeta announced a partnership on a debit card with Found, a platform provider for the self-employed and small businesses.

"The proliferation of marketplaces and platforms that help SMBs reach bigger markets has driven great business growth," Marqeta Chief Executive Simon Khalaf said on the company's Aug. 7 earnings call. "This is where Marqeta solutions come into play. We offer solutions ranging from expense management to commercial credit and working capital to help these businesses operate with improved efficiencies and capitalization."

Marqeta is betting a need to diversify sources for business banking and payments will create opportunity in Canada. The largest banks there dominate the country's banking industry, thus influencing the products and level of service that is available. The five largest banks — Toronto-Dominion Bank, Royal Bank of Canada, Bank of Nova Scotia, Bank of Montreal, and Canadian Imperial Bank of Commerce — control about 80% of the country's market, according to Banking Canada.

In Canada, credit card issuing is much more concentrated than in the United States, said Eric Grover, principal at Intrepid Ventures.

"There are five or so big huge banks that are very dominant," Grover said. "There are fewer banks, so the fintech environment we take for granted in the [U.S.], where there are small banks willing to do creative deals with various fintechs — that market is much more limited."

That lack of competition also makes it more expensive for companies to enter the Canadian marketplace, said Matt MacInnis, chief operating officer at Rippling.

"The competitive environment is very different, because the market size is very different," MacInnis said. "The cost of entering Canada relative to the addressable market is high; you access a much larger market in the U.S. than you do in Canada."

For Rippling, these factors led to a commercial card rollout in Canada, he said, noting that the company already has a similar corporate card business in the United States.

"It makes more sense for your card issuer to be a software company, not a bank," MacInnis said. "The reason is that the business intelligence or the business logic that you want to have applied to spending."

That applies to the front end of spending, such as deciding whether to approve a transaction; and on the back end of spending, such as deciding when to reimburse to employee or what to do with an expense, MacInnis said, adding all of that is tied to the employee's record.

Rippling uses data from its clients' employees to automate much of the credit card processes for small and medium businesses. Cards are automatically issued or closed when an employee is on-boarded or off-boarded, and companies can set rules that limit spending based on vendor, time of day or role at the company. For example, purchases may be limited to the hours of 9 a.m. to 5 p.m. across different time zones, or certain retailers, such as Amazon.com or Microsoft, may be limited, depending on company policies for individual departments.

Rippling uses similar logic for its own employee's spending rules, MacInnis said. "We have a bunch of engineers who buy Amazon Web Services stuff on their corporate card, and we allow a really high limit for people in the engineering department for AWS. But then, Amazon is actually a really dangerous vendor for everyone else in the company."

A locally issued card would also reduce cross-border fees for Canadian companies, MacInnis said.

"There's way more cross-border spending in Canada than in the U.S.," he said. "Literally as much of your transactions can be domestic as it is U.S. and international."

For now, Rippling is "focused on the value proposition" and its "ability to really offer a local experience" but will consider offering cash-back rewards in Canada similar to the company's U.S.-based corporate credit card offering down the line, said Alexa Meyer, a Rippling spokesperson.

Rippling shares the interchange revenue with Marqeta and will eventually use that revenue to administer card rewards .

For smaller companies, corporate credit cards with rewards effectively allow them to turn payments into a revenue generator, Intrepid Venture's Grover said.

"Smaller companies are less well-served," Grover said. "If you can find a way to give them friendly, easy-to-use products in this area, and if you can find a way to do it for a lot of them that could be interesting. American Express isn't effectively knocking on the door saying, 'Here's our purchasing product for this small hardware store.'"

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Marqeta, Rippling join Canada’s small business banking battle | PaymentsSource

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