When the COVID-19 pandemic arrived in March 2020, almost every Canadian business hit pause to re-evaluate the situation. Small businesses were among the first to feel the impact.
For Toronto-based peer-to-peer lending platform Lending Loop, those impacts were immediate. Its main customer base, small businesses, were no longer looking for growth financing, CEO Cato Pastoll recalled.
“The confidence among entrepreneurs was really low,” said Pastoll. “So people didn’t want to take on new investments at that point in time, especially in the form of debt, when there was so much uncertainty.”
“They’re using their banks to run their business and they’re just getting gouged on all of these foreign exchange fees.”
Lending Loop’s business took another hit when the federal government started doling out loans for small businesses through a variety of programs, which made Lending Loop’s ability to provide meaningful capital challenging, Pastoll told BetaKit in an interview. And while startups, including Lending Loop, urged the government to utilize their FinTech platforms to distribute loans, nothing on that front came to fruition.
The eight-year-old startup was at a crossroads. Knowing that Lending Loop still had expertise and value to provide to small businesses, Pastoll and his team turned to their customers and started talking about alternative pain points they might face on a regular basis.
They discovered that the financial needs of e-commerce businesses are not being met by banks – especially when it comes to cross-border payments.
Pastoll recalled several entrepreneurs whose bank forced them to show up in person in order to pay suppliers, and others who were told that the only way to open a United States banking account was to drive down to the bank’s Buffalo, New York branch – during the height of the pandemic when the Canada – US border was closed.
The team behind Lending Loop decided to transition its business to address more pain points than just lending, and Loop was born.
The goal with Loop is to provide a wider range of financial services for e-commerce businesses. The company’s first product is a corporate card specifically for cross-border transactions. The card allows companies to purchase in multiple currencies without fees. It also provides an extended repayment grace period, and credit limits based on sales rather than personal assets, which is often the case when entrepreneurs look to access corporate cards through banks.
In addition to the card, Loop hopes to provide a range of products that make it easier for Canadian e-commerce companies to do business internationally. Pastoll did not disclose Loop’s product roadmap, but noted the original peer-to-peer lending product is still around.
“Capital solves one part of the equation,” Loop’s CEO told BetaKit. “But we learned that there was the ability to solve so much more. And by doing that, there’s an opportunity to build a much thicker relationship.”
In pivoting from lending to a broader financial services play, Loop has entered an increasingly competitive market. In the United States, well-capitalized players like Brex, Ramp, and Jeeves have created corporate cards tailored to startups. And in Canada where the market is still fairly bare, up and comer Float has attracted more than 1,000 customers in the last year alone.
In the Canadian market, Float’s competitors currently include New York-based Jeeves—which launched in Canada last year—and Toronto-based Caary, which secured $4.1 million in funding last summer.
However, Pastoll is adamant that Loop’s product is different from the others, specifically targeting Canadian-based e-commerce businesses that are doing business internationally.
“Our product is specifically built for this customer segment that is doing business cross border,” said Pastoll. “And we’re understanding the two key things: working capital and needing to move money seamlessly and cost-effectively around the world. Those are like core tenants that are important to e-commerce businesses.”
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Businesses can spend and make payments in CAD, USD, GBP and EUR currencies without foreign exchange rate conversions and fees. The Loop Card also provides 55 days of interest-free spending, which the startup argues is the longest interest-free period in the industry.
“The reason we’re offering that value prop is because we listened to e-commerce founders and heard, ‘I need the ability to basically push my expenses down the road so I can grow my business,’” said Pastoll.
Because of these features, Pastoll doesn’t view Float as a direct competitor. However, Float and Loop are among those fighting to be the winner in the Canadian corporate card space. In fact, Loop advertises itself in Google searches as an alternative to Float’s card, much like how Float advertises itself as an alternative to Ramp.
Both Pastoll and Float CEO Rob Khazzam argue that the real competition is the traditional banks, but banks that are undeserving small and e-commerce businesses.
“Most businesses that I speak to today, they’re not using Brex, Ramp Float, whatever, to run their business,” said Pastoll. “They’re using their banks to run their business and they’re just getting gouged on all of these foreign exchange fees.”
While FinTechs like Loop are popping up to offer alternatives to banks, Pastoll emphasizes that they can’t just offer small financial services; companies like Loop need to be full-service solutions.
“If we want to displace the banks then we need to offer feature parity with banks … we need to be able to basically offer all the same things that you would do with your bank but at a much cheaper cost than you would expect from a bank, and also with a much more seamless user experience,” Pastoll stated.
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With the plan to offer a variety of financial services for startups and e-commerce companies, Loop also comes up against the likes of Shopify and Wave, which created business bank account products for their customers, including cards, in recent years (though focused on the United States). Clearco is another such player, and like Loop, it started in the lending space and quickly realized the opportunity in offering an array of financial services to e-commerce businesses.
The Loop Card was initially available through a 12-week beta period, with Loop claiming that 80 companies signed up, and spending on the card grew by 25 percent each week during that time. The card is now available broadly to any businesses that sell through Shopify, Stripe, Amazon, or WooCommerce. Pastoll noted plans to expand beyond those platforms in the future.
“The biggest disconnect in terms of the legacy financial world, and in my view where the financial world is going, is the future of commerce is global,” said Pastoll. “And so the future of financial services also needs to be global in order to support that. And that’s really what we’re building.”