Small and midsize businesses face unique challenges that many of their larger brethren can readily overcome.
Enterprise-level companies benefit from innumerable resources and deep pockets, while small companies must constantly discover solutions that help them maintain a competitive edge with lower overheads. As such, it is unsurprising that many financial technology, or fintech, innovations are rapidly adopted by startups and other small businesses long before acquiring mainstream recognition.
Even so, finding the right fintech solutions requires a blend of reading tea leaves and understanding broader technological trends. To stay competitive, small businesses must keep their ear to the ground and uncover solutions that will improve their services, optimize their processes, and keep them lean enough to generate profits. These five trends are set to change the game, and SMBs would be wise to embrace them, or run the risk of being left in the dust of more tech-forward competitors.
1. Better transaction and payment processing
One of the big focuses of fintech has been in the payment processing arena.
Whereas traditional credit card processors and PayPal were once the exclusive channels for companies seeking to handle digital payments, new entrants are quickly challenging their more established peers in the industry. Companies such as Stripe and Payoneer have thrown their hats into the ring, offering lower fees, fully digital solutions and more efficient processing times.
While many consumers still use credit cards, offering alternative payments that remove this middleman can result in better prices for end users. Additionally, it can open up SMBs to a broader audience that may not have access to traditional payment methods, or those that prefer to work entirely through digital payments and e-wallets. More people are shopping online than ever before, with digital purchases across a wide swath of industries expanding rapidly. By adopting these payment solutions early, companies can position themselves for long-term success.
2. Alternative sources of funding
As recently as a decade ago, most startups and small businesses had few options for raising capital outside of brick-and-mortar institutions. They could offer up part of their companies to venture capital firms or angel investors, or they could find an institutional lender for a complicated loan process. Recent fintech developments have added a faster, less complicated solution. The rise of lending as a service (LaaS) allows small business owners without the creditworthiness or financials to qualify for a traditional business loan to access new financing options.
LaaS platform ezbob, which offers perks such as instant approval and same-day funding, provides companies with an instant source of cash flow to finance their expansionary needs. Moreover, with a transparent process and reduced overheads, ezbob and its peers can offer more competitive rates and terms.
While applying for loans is never risk-free, these new lenders give SMBs an alternative borrowing option. Apart from the advantage of having access to precious capital needed to thrive and grow, these choices empower owners to retain complete control of their companies.
3. Blockchain and cryptocurrencies
Cryptocurrency remains a controversial topic in the fintech space. While the technology is clearly on the rise, it remains unproven despite its practical application gaining traction in other unique industries like logistics. However, the underlying framework for cryptocurrencies such as bitcoin – the blockchain – offers an intriguing method for new financial innovation. Blockchain offers a decentralized and secure way to process transactions that avoids many common pitfalls. The technology is highly encrypted and still not entirely regulated, meaning taxes and government intervention are still not abundantly present.
Additionally, fintech companies are quickly developing ways to use blockchain technology itself and cryptocurrencies for payment processing, investing, and even holding fractions of liquid assets. With the rise of crypto-wallets and leaps in payment alternatives, SMBs can find themselves on the cutting edge by embracing cryptocurrency. Additionally, they can control company equity in a way that changes value based on performance.
4. Innovative ways to measure creditworthiness
By and large, most businesses and financial services providers still use FICO credit scores when determining a customer's creditworthiness. Nevertheless, new systems are emerging that could challenge the supremacy of these somewhat dated and often inefficient ratings systems. Many fintech innovators are abandoning the old method of simply using debt and inquiry records to measure individuals' financial health.
Instead, companies such as TrustingSocial are embracing the information age and putting a broader range of data through algorithmic models to better analyze customers' credit scores and expedite the underwriting process. This includes using data points from social media, social interactions and online behavior patterns alongside more traditional financial metrics. By using a more inclusive picture of financial health, SMBs can identify consumers who are better suited to their products and easily meet their needs.
5. Financial security improvements
As payments and commerce continue to shift toward the digital universe, security has become a major sticking point. In the past decade alone, several major corporations have seen their data centers breached and massive amounts of consumer information stolen. Fintech is already tackling this problem from several angles. Companies have started using blockchain to secure cross-border payments with more secure protocols that enable faster speeds. Additionally, several firms have developed systems in the IoT (internet of things) ecosystem that can easily authenticate users for payment and cut down on identity fraud significantly.
SMBs can set themselves up as trustworthy for clients by embracing these modern technologies and deploying them throughout all facets of their business, from payments to data security. By working to offer a safer service, they can attract tech-savvy and concerned customers who are fleeing larger companies with known vulnerabilities.
Innovation is always a tricky subject. It can be costly, but it can also have long-term rewards that give SMBs an edge over more established and entrenched peers. By being at the vanguard of fintech, these smaller businesses can benefit directly from new developments that empower market leadership in an increasingly tech-heavy marketplace.