No more side quests

Markets: The TSX and all three major U.S. stock indexes finished the day in the green, while oil prices inched up 2.75%. Lululemon’s stock fell after its earnings call, with its sales forecast coming in below analysts’ expectations.

Canada’s most valuable company has started cutting the cheques that big banks won’t. 

Driving the news: Shopify is quietly building a sizeable money-lending business, with almost US$1.8 billion in loans on its books as of last quarter, per The Logic. The loan division, Shopify Capital, has grown by at least half in each of the past three years, with total loans up 19,500% since launching in 2016. 

Why it’s happening: Because of all the data it collects from its merchants, Shopify has a unique edge in predicting which businesses would benefit from a loan and be able to pay it back. The company, which already takes a cut of all its merchants’ sales, also stands to directly benefit if that loan translates into more business. 

Why it matters: Shopify Capital is filling a gap in the market for entrepreneurs (particularly those in the e-commerce space) who often can’t access loans from Canada’s risk-averse banks. One study found more than a quarter of Canadian small business owners needed to put up their homes as collateral just to get a bank loan.—LA

Canada ruled out joining military operations against Iran. Defence Minister David McGuinty said it was “clear from the beginning” Canada would not join the war, and that would remain the case. Elsewhere in the conflict, Donald Trump denounced NATO allies for rejecting his calls for them to join the war, Israel said it had killed two top Iranian officials, while the Trump administration’s top counterterrorism official resigned. (Global News)

Loblaw was fined again for labelling imported food as Canadian. The Canadian Food Inspection Agency fined a Loblaw-owned Fortinos a whopping $10,000 for promoting as Canadian a cheese actually made in France. You may not think $10,000 is more than a tiny drop in the bucket for a large grocery chain, but this is actually one of the first fines the agency has ever issued for this sort of violation. Baby steps. (CBC News)

Canadian billionaire Stephen Smith bought a 27% stake in The Economist. Smith reportedly paid around £300 million ($548 million) for his share of the storied 183-year-old magazine, which is popular among the political and business elite. Smith made his fortune founding the mortgage lender First National Financial, which was acquired last year by Brookfield for $2.9 billion. (Financial Times)

📡 What else is on our radar: 

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🤝 Meet Wayne Pommen. He's the Chief Revenue Officer for Affirm, the largest U.S.-based buy now, pay later (BNPL) company, and the former president and CEO of PayBright, which was Canada's BNPL provider before its acquisition by Affirm. Wayne joined us to chat about how BNPL impacts consumer behaviour, whether fintech companies like Affirm can replace credit card giants, how AI will impact the payments space, and more.

What do you make of the criticism of BNPL that people spend more when they use these products?

The key thing to look at is the incentives of the credit provider. Affirm has no incentive for consumers to overspend because we have no way to benefit from that. If a customer becomes overstretched and falls behind on payments, that is only downside for us. There are no fees or penalties for us to collect.

Contrast that with the business model of credit cards. The average Canadian owes over $4,300 CAD on their credit cards, and nearly half of cardholders revolve a balance month to month. So long as borrowers make the minimum payment, they are able to keep spending. And if customers miss their minimum payments, late fees and penalties apply. What are the incentives of the credit provider here? For customers to spend more than they can comfortably afford to repay. Indeed, the best customer for a credit card issuer is the one that makes only their minimum payments and pays enormous amounts of compound interest every year.

Affirm's stock was down, along with other fintechs, recently because of growing concerns about AI’s impact on the space. Is AI a risk for you? 

On the consumer side, our view is that AI is a massive tailwind for Affirm that will accelerate many of the trends we’ve been talking about over the last decade. For example, consumers having access to PhD-level advisors that can instantly read through all the fine print, or using agents to do the shopping, will accrete to Affirm. We believe AI can promote radical transparency in consumer finance, for example by detecting fake 0% APR offers and avoiding options that have deferred interest or other hidden charges. 

Internally, we’re very excited about the gains our teams are realizing from AI adoption as new techniques and tools become available. We’re heavily focused on this across the company.

What are some of the unique challenges with building a fintech in Canada? 

Canada can be a great place to build a fintech company - it has strong technical talent, high consumer trust, a stable financial system, and a manageable regulatory environment. It also tends to be less brutally competitive than the US. The challenge in Canada is always scale - the market is smaller, there are fewer large partners, and capital markets are less deep. 

Canada’s banking sector is also very different from the US, dominated by five or six players in a very concentrated and profitable industry. On the downside for fintechs, this makes the banks powerful and able to resist change, including regulatory modernization. On the plus side, it means they lack competition and are slow to innovate.

This Q&A has been edited for length and clarity. Read the full Q&A on our website.

The leading AI labs are narrowing in on the most likely viable business model: selling their tools to businesses.

What happened: OpenAI is pivoting its strategy to focus on serving software developers and enterprise customers, and its leadership has told employees that they can no longer be “distracted by side quests,” according to The Wall Street Journal. 

Why it’s happening: OpenAI is widely regarded as having fallen behind Anthropic in the enterprise market, particularly after an update to Claude Code late last year that improved its coding ability. 

Why it matters: For now at least, OpenAI’s approach of building AI tools for regular consumers appears to have hit a dead end. It’s now come around to Anthropic’s theory that the most realistic path to profitability (or at least to losing money less quickly) is by getting more businesses to use their products. 

Our take: The top AI companies are now directing their considerable resources to getting more businesses to use their products. There’s a good chance that will lead to more companies adopting AI sooner than they otherwise might have — and accelerate the impact on white-collar workers.—TS

🏠 $661,100. Benchmark home price in Canada last month, nearly the same as in the spring of 2021. Home prices fell 4.8% in February, with B.C. and Ontario markets seeing the biggest pullback in home sales. After months of declining prices and sluggish sales, some economists expect buyers to come off the sidelines this spring.

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It’s a great day to take on the puzzle gauntlet: Today’s mini crossword, the daily sudoku, Codebreaker, and an all new Who’s Who.

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