There is little doubt today that financial technology developments are helping small businesses and entrepreneurs get started and build their businesses toward success. In a time when credit availability and traditional funding opportunities may not be as robust for smaller businesses as they are for their larger counterparts, fintech as an industry has rapidly and increasingly made its way into the ecosystem of tech-savvy entrepreneurs to provide them with access to products and services that have been specifically created or customized for their needs. The individual solutions that an entrepreneur will seek will vary depending on specific business needs, but here we outline a handful of areas in which fintech can make a considerable contribution in helping businesses thrive.
With banks’ reluctance to extend credit to small businesses—a trend that took shape particularly in the aftermath of the Global Financial Crisis in 2008—alternative lenders have emerged over the years to help make funding more accessible. The number of fintech-based online lenders has grown over the past several years, with some prominent lenders focused on the SME niche including OnDeck, Paypal Working Capital and Kabbage. These services provide either fixed term loans or lines of credit and are known to offer simple pricing and payment models, as well as faster processes than what can often be lengthy and complex approvals processes at traditional banks.
The trend of alternative lending over the past few years is notable. S&P Global Market Intelligence 2018 US Fintech Market Report breaks down fintech lenders into personal-focused, SME-focused and student-focused lenders. While personal lending accounts for the greatest piece of the total origination, the business segment still makes up a significant piece of overall origination and is expected to grow at the highest rates over coming years. The report, the latest available, estimates that total loan originations, counting all three categories, grew about 30% year-over-year for a total of $41.1 billion in 2017. It expects the pace of growth to slow but to remain “healthy” over the next five years, for a projected $73.8 billion by 2022.
Keeping a check on expenses and monitoring cash flow are some of the most important parts of maintaining a solid accounting system. There are fintech companies that provide cash-flow management applications for small businesses, including invoice-financing companies Fundbox and MarketInvoice that help address delayed or unpaid invoices. Moreover, with financial information and data flowing faster and more freely than ever, automation of processes can help place more power at the fingertips of business leaders and decision makers. Applications such as Fluidly, backed by artificial intelligence, can help businesses gather clearer insights into budgeting and automated cash-flow forecasting. With fundraising dollars for such fintech applications flowing in from both traditional banks and other investors such as venture capitalists, it is clear that interest remains strong in alternative finance and in fintech companies to help address business-to-business pain points.
Engaging in international payments could be costly for small businesses. Fintech applications can help reduce the costs associated with international money transfers, foreign exchange services and overseas payment acceptance. Companies that provide such services include CurrencyFair, which manages overseas salaries and invoices, and collects international payments; and Kantox, which provides currency collection and foreign exchange risk management services.
It’s never been easier for a small business to set up its presence online. Fintech has contributed significantly to global e-commerce by improving the online payment system and making cross-border e-commerce more accessible. Payment processing solutions include Square and Stripe, which can be utilized via smartphones and other connected devices. Payment platforms can integrate with e-commerce platforms such as Shopify and WooCommerce to improve security and efficiency.
Customer Engagement and Insights
Developments in financial technology has also expanded customer engagement and can provide businesses with a closer look into and various insights about their customer base. Feature-rich applications provide consumer patterns and data about customer interests, which could provide invaluable intelligence; businesses could do well to utilize customer engagement technology to stay competitive.
Fintech developments have allowed for new ways of starting and running a business and opened a whole new world of opportunities for entrepreneurs. They offer small businesses a greater range of services, at lower cost, and with capacity for tailored solutions, to help them make processes more efficient, cut expenses and provide improved customer service. Business owners should identify specific areas in their operation that may benefit from utilizing fintech products.
Mr. Lieberman is the founder and CEO of The CEO’s Right Hand, Inc., a New York-based consulting services firm that provides the full breadth of strategic, financial and operational advice to founders, CEOs and Executive Teams. As an experienced entrepreneur himself, he has served in various C-suite leadership and advisory roles across a wide spectrum of industries.
His first venture was CMR Technologies, a FinTech company based in San Francisco serving the investment management consulting space. From CMR, Mr. Lieberman formed Xtiva Financial Systems, a software company specializing in sales compensation solutions for the financial services industry. Mr. Lieberman served as Xtiva’s CEO, building the company to over $10 million in revenues and 100+ clients. He also served as the President and CFO for Interactive Donor, a New York-based Benefit Corporation which incentivizes charity through rewards.
Mr. Lieberman holds double Masters degrees, one in Business Administration and the other in Computer Science from the University of California at Los Angeles. He completed his Bachelors in Computer Engineering from the University of California at San Diego.