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How fintechs are getting small businesses the help they need faster

The current Covid-19 pandemic is stressing small businesses around the world in extraordinary ways. Small businesses make up a significant portion of the global economy, yet many may never recover from the current crisis. Mandatory orders to shift operations online or shut down entirely have left many small businesses in difficult positions to maintain cash positive while rent, payroll, and other expenses stack up. 

Federal aid programs are starting to roll out; however, the demand is already stretching aging banking systems and creating devastating delays. What’s more, concerns are rising that aid is tilting in favor of larger enterprises with existing relationships with financial institutions, leaving many small businesses completely out of the picture. 

As a result, fintechs around the world are urging federal governments and banks to allow them to help ease delays, frustrations, and confusion in a number of ways. 

Faster loans

The global fintech lending market is expected to expand at a CAGR of 13% between 2020 - 2026. Yet gathering required documents and filling out loan applications is a lengthy process. Studies suggest that small business owners spend on average up to 25 hours on a single application for traditional banks. Meanwhile, fintechs can gather information with an online application process that takes 30 minutes or less to complete, and pull any supplementary data needed from other digital sources. 

Stay-at-home mandates also mean small business owners cannot walk into a bank and receive the help they need. Fintechs are able to provide small businesses with a completely digital and more personalized customer service experience. An automated loan application process frees up customer support teams’ time spent on mundane tasks, in addition to providing a more in-depth look at a business' entire operations. Traditional bank loan decisions are typically based on historical financial data and conventional credit scores, leaving out alternative, real-time data that can help expedite the decision-making process. 

Fintech solutions are filling this gap with alternative credit scoring methods that use a combination of both structured and unstructured data to predict future financial behavior. Unlike most traditional banks, fintechs are capable of collecting data and evaluating risk quickly using a variety of technology tools, such as machine learning, resulting in more immediate funding for small businesses. In some cases, the entire application, underwriting, and compliance process can be completed in a matter of hours or minutes thanks to sophisticated software. Therefore, many ‘non-bank’ fintech lenders are well-positioned to fast-track critical funding securely and transparently to small businesses who are struggling due to the Covid-19 pandemic. 

Financial data security

Data leaks are a serious threat to any business; however, small businesses are frequently targeted because they lack the budget to implement sophisticated security measures to protect their business financial information and customer data. What’s more, as small businesses are moving their operations online out of necessity, exposure to data security threats is moving online with them. Accenture indicates that cyber attacks are costing organizations on average US$243,000 per incident and taking more than 50 days to resolve.

Businesses must have a plan to protect themselves against cyberattacks that could disrupt and cause costly damage to their operations, especially during this vulnerable time. Many businesses are already implementing biometric payments, where systems can automatically charge a customer’s credit card based on a quick fingerprint scan or voice and face authentication, which also helps decrease payment friction. Fintech software that helps monitor customer patterns online is becoming more accessible as well, giving businesses a way to flag any unusual activity before it can cause harm. 

Transaction transparency

Small businesses need to collect payments in a timely manner. Failing to do so now can be detrimental. Fintechs are helping small businesses receive and make payments on time by automating the payment process end-to-end. In many countries, electronic invoicing is now required by law, and fintechs have stepped in to help businesses comply with invoicing guidelines, automate invoicing, and understand how to use invoice data to make better financial decisions.

After payments have been collected, transferring money through traditional banks involves costly services fees that can add up quickly for a small business. There are countless fintechs that can help reduce these service charges, regardless of the transaction size or physical location of the business.

Many fintechs are also helping small businesses transfer data to banks, stakeholders, or government entities securely online. By keeping everything online, businesses can eliminate pen and paper processes and can manage their finances more efficiently.

Fintechs are stepping up

In this time of uncertainty, small businesses cannot afford to lose time dealing with legacy systems and processes while there is a whole new generation of fintech that can help. Around the world, fintechs are stepping up and even pivoting their business models to support small businesses. For instance, when most brick-and-mortar businesses were forced to shut their doors a few weeks ago due to social distancing, payment processor Square transitioned and received a bank charter approval, allowing it to make small business loans directly. Meanwhile, Plaid, a platform that enables applications to connect with users’ bank accounts, is developing a product that speeds up the payroll portion of emerging loan applications in the US from days to a matter of minutes. 

While government rescue packages are on their way, there are countless fintechs moving quickly and shoring up liquidity for small businesses. Fintechs can perform and automate a number of other tasks as well, such as mitigating fraud and data collection, helping governments and banks deliver on their promises faster. 

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Andres Abumohor

Andres Abumohor



Member since

07 Feb 2020



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