The 2008 financial crisis and its aftermath, the invention of the smartphone, and advancements in technology are all to thank for the rise and increase in fintech innovation. In fact, it’s over 10 years since the first fintech companies stepped in to fill the gap left by banks.
With so much success witnessed in the sector, it’s no surprise that many investors continue to flood the market. Such financial backing hints at more to come in terms of innovation and market reach. In fact, the past few years have seen fintech companies branching off into new spaces.
The result? Customers benefited the most from these innovative products including more efficient lending and payment methods. Here are three ways the fintech sector will ramp up the financial sector.
1. B2B Lending
If you’ve been through a bank loan application process, you know how frustrating it can get. The worst part is you’ll go through the entire process and still fail to secure realistic loans. However, you can’t really blame the banks, especially after witnessing the aftermath of the 2008 financial crisis.
This resulted in the tightening of lending rules to avoid a similar situation again. Nevertheless, this was a blessing in disguise because fintechs saw the gap left in the market and stepped in to fill it. These lenders revolutionized lending, thanks to the use of advanced technology, including big data to make fast decisions and also reach a bigger market.
The B2B world seems to be following suit. With the emergence of fintechs, it’s expected that midsize and small businesses will take advantage of the generosity and speed of the fintech companies to secure credit. Businesses that are just beginning or barely established find it difficult to acquire loans from banks, so this will be a great opportunity to advance their businesses.
Some of the companies that offer business loans include OnDeck, Fundera, and Lending Club. There’s also a great chance that supply-chain financing will rise dramatically. It’s been in people’s mouths for the longest time now but the reality is the segment isn’t big.
Nevertheless, there’s massive transactional data amassed by marketplaces, networks, and B2B platforms. With such data, it’s possible to get funding from lenders willing to use purchase orders, invoices, or startup funding as collateral.
Of course, chances are banks will provide the bulk of the initial capital. However, these fintech companies will act as a bridge between the banks and the startups.
Consider a company such as Surecomp. This tech company offers an application programming interface (API) that connects both the business and the bank systems to grasp underwriting information such as trade contracts and invoices. Other players in the same space include Invoice Fair and MarketInvoice.
2. B2B Payments
Forget about credit and debit cards for payment. Fintech companies have come up with extraordinary methods to ease B2B payments and also those between consumers and businesses. With a mobile phone, it’s easy to send and receive money while also making payments for purchases online, especially for people who don’t have bank accounts or credit cards.
A perfect example is M-PESA – a money mobile service invented in Kenya. The service requires a simple network connection and doesn’t require an internet connection to function. With over 92% of Kenya connected to 2G, this service has revolutionized sending and receiving money there. What’s more, all you need is a valid national identification card.
Such innovations have been on the rise, but the recent advancements in technology have fueled the growth even more. Banks have for a long time sidelined B2B payments; they’ve done so for a good reason, though. You see, business payments feature numerous paper checks, manual processes, and complexities.
On the other hand, fintech companies provide a sleek solution through process automation, on top of transferring money from one party to another. WorldRemit is one of the companies in this space; it recently announced the launch of a new product called WordRemit for Business Service. With this new product, companies will be able to move money across borders to pay contractors and employees.
For decades, banks have eyed business payments, yet many consumers feel more comfortable using products from tech companies—and for good reason. These companies come with better offerings, and this is bound to spark more growth going forward.
3. The Perfect Collaboration
After the 2008 financial crisis, banks and other traditional financial institutions were on the edge, and logic had it that fintech companies would swoop in and take charge of the market. However, that was not to be, but it’s no doubt that traditional financial institutions felt the heat from the tech companies.
These institutions made a wise move to embrace technology—something that may have saved them from taking second place in the lending market. Fintech companies also accepted the approach, but the partnership didn’t take off as fast as many people expected.
Both players have their own strengths. Banks, for example, have a huge reach, colossal customer bases, and massive assets. However, they lack the latest technology, which is where fintech companies beat them.
Partnering then becomes the obvious move. With this, consumers stand to benefit from increased efficiency and better offerings. However, that’s yet to be seen on a large scale. Some of the notable partnerships include Chase, which has acquired several fintech companies.
Fintech companies continue to push hard into B2B payments, and this poses a challenge to banks. As the lending gathers speed, banks will feel the pressure increasing to reach these lucrative markets and also fend off encroachment into their market share.
The likely result will be increased partnerships, where both parties will have the opportunity to safeguard their interests, while also tapping into each other’s strengths. Lending and payments opened the door and this is a major factor causing the great need for these services.
At this point, many consumers have felt and experienced the power of fintech products. In fact, business buyers are already adjusting their strategies to fit consumers. Accounts payable is one of the categories that still grapple with inefficiencies in their processes.
What this Means for Business Customers
Finance departments in many companies are beginning to embrace these new financing and lending options for their customers and are also looking past banks. For business customers, it means a wide array to choose from and with stiff competition in any marketplace, the customer is always the winner.
There’s no doubt that banks and fintech companies will have a great future, starting with their partnerships. However, it’s the businesses that will reap the most benefits from this growth in the sector.
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