Fintech, Bank Collaboration Creates Wins for Customers
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SMB’s Face Unique Challenges — Fintech Has Solutions
Small and medium sized businesses power the American economy. Firms with fewer than 500 employees employ more than half of the country’s private workforce.
Gartner defines small and medium sized businesses by number of employees and annual revenue. Small businesses are defined as those with 100 or fewer employees with less than $50 million in annual revenue. Medium sized businesses are then described as companies with 100 to 999 employees and with annual revenue between $50 million and $1 billion.
Although small and medium sized businesses are vital to the economy, these companies and their leaders experience many distinct struggles, including ongoing concerns about cash flow. Nearly half of the 2,000 small businesses surveyed indicated they were either concerned or very concerned about their cash flow, according to a study conducted by Mercator.
Clearly, there’s a role for fintech in helping SMBs solve cash flow and other problems. In a recent episode of the B2B CashFlow Conversations Podcast, Finexio founder and CEO Ernest Rolfson interviewed Dion Lisle, founder and partner of Forty Grand, a consulting company that helps community banks leverage the power of technology, about the ways that fintech can assist SMBs.
In Lisle’s experience with community banks, which the U.S. Federal Reserve Board defines as those with assets of less than $10 billion, these entities are interested in technology for the benefits it can provide for their customers. “In contrast to the big banks, community banks will say our customers need this or our customers asked us about that, or we need to deliver this to our customers,” he said. “They are much more about service, about believing that their reputation matters and their customers matter.”
“When talking about the big boys, the top five biggest banks, I think most people would agree that they care less about customers and more about what type of commodity they can push out there,” Rolfson observed.
“It’s all about quarterly results, right?” Lisle agreed.
Given Finexio’s and Forty Grand’s focus, Rolfson wondered how fintech solutions in areas such as AP automation, B2B payments, treasury cash flow and working capital management could benefit SMBs.
Lisle mentioned that he was speaking to a community banker about increasing efficiencies through technology and that banker mentioned how helpful it would be if there was technology available so that he could pull his SMB customer’s QuickBooks accounting records, analyze it and make recommendations for the future.
“I told him that was definitely doable,” he said. “But when you’re used to going out with a notebook, taking notes, coming back to the office, analyzing it and then making recommendations, that would be a big change. Imagine if you could do that with say an electrician’s business and go back to him and tell him that from analyzing his business it looks like he’s going to need a new truck. Then, you could offer him a working capital loan to buy that truck. The guy I was talking with was like, ‘What? We could do that?’ I told them that’s basic stuff, it wouldn’t even be that hard. And they were blown away.”
“I think that education is definitely needed so that small and medium sized businesses like your community banks understand that digital tools enable richer personal interactions and actual, more meaningful customer engagement,” Rolfson said in response. “On the predictive side, leveraging trends and analytics is not that complicated — you don’t need AI or machine learning to get to the core of what a $10 million business needs.”
For community banks and other types of SMBs, Lisle recommends starting with data hygiene, data structure, data strategy and data schema to get executives and managers to understand what data is available and what it means. Then, the SMB can proceed into gap analysis, a process audit followed by data strategy. Once those things are in place, the table is set to make other moves that will help customer engagement and drive success for the business and their customers.
Rolfson agreed, noting that in the middle market and the small business market, big banks haven’t delivered for those customers. An SMB CFO who needs help in financial services is more likely to get on Google to try to find help with software or accounting or accounts payable instead of going to a big bank. With these trends, both Rolfson and Lisle agreed that banks, especially large banks, are at more risk than ever of being disintermediated from their customers, especially SMBs.
Learn more about how fintech can improve cash flow for SMB’s. Read our latest report, “Evolving Supplier Payments into an Engine for BusinessGrowth”.
Catch the full episode of “B2B Cashflow Conversations” with guest Dion Lisle below.
- “How Small Business Drives U.S. Economy,” ThoughtCo., July 26, 2021, https://www.thoughtco.com/how-small-business-drives-economy-3321945
- Small and Midsize Businesses (SMB), Gartner Group, https://www.gartner.com/en/information-technology/glossary/smbs-small-and-midsize-businesses
- “Report: Small and Medium Businesses (SMBs) Are Concerned About Cash Flow,” Payments Journal, March 11, 2021, https://www.paymentsjournal.com/report-small-and-medium-businesses-smbs-are-concerned-about-cash-flow/
- “Community & Regional Financial Institutions,” U.S. Federal Reserve Board, Sept. 15, 2021, https://www.federalreserve.gov/supervisionreg/community-and-regional-financial-institutions.htm
Structural Changes Attract Customers, Investors to Fintech
For decades, customers and investors were at the mercy of traditional financial services companies. Whether you like the companies and their business models or not, if you wanted payment, loan or deposit services, that’s where you had to go from the customer point of view. If you were an investor who wanted to diversify into financial services, the question was similar because there wasn’t much differentiation between the various options.
Today, fintech has revolutionized the playing field in financial services for customers and investors. Customers can choose to take some or all of their business outside of the traditional financial services arena just as investors can favor fintechs over traditional banks, investment companies and other financial services firms.
The pandemic has only speeded the transition to more choice and more democracy within financial services for both consumers and investors as fintechs continue to build muscle.
In a B2B CashFlow Conversations Podcast hosted by Finexio CEO and Founder Ernest Rolfson, Rolfson interviewed Marwan Forzley, CEO and Founder of Veem, a domestic and international B2B payments company.
“It used to be, pre-pandemic, that we would shop in-person first and then online for what we couldn’t find at the local stores,” Forzley said. “Today, we shop online first unless you’re really stuck and can’t wait for something to get shipped — that’s one trend. The second trend is that it used to be you’d start a business, open an office, find people to work there and pay them by direct deposit from a bank. Today, with so many people working remotely, your staff can be from anywhere and you need to be ready to pay them anywhere.”
“There’s also the rise of more types of payments both domestically and overseas,” he continued. “I think crypto [currency] is here to stay despite the dismissiveness of many who believe that it won’t remain because of a lack of intrinsic value.”
“There’s a big takeaway here that many people don’t understand crypto and that it’s not going anywhere,” agreed Rolfson. “It’s very serious and very real.
Rise of fintechs as neobanks
Forzley also spoke on other trends he is seeing. “The rise of neobanks is interesting in that fintechs are offering services and experiences that are encroaching on the territory of banks but are different than banks,” Forzley said. “I think we are going to see more B2C and B2B neobanks. The market is complicated, so it requires massive simplification over a long period of time, which means that a number of players will emerge to make that happen.”
“It sounds like you’re in the right spot,” commented Rolfson. “What are your thoughts on the timing and speed of payments and how that is evolving?
“This is a great topic — thanks for bringing it up,” Forzley replied. “I think the work Finexio is doing in this area is quite valuable for customers. Capital and payments are close cousins. If you ask a customer what else you can do for them, besides payments, they usually ring up lending. I think there is a lot of room in this market, which will be a key area in the future.”
In 2020 Finexio launched FinexioCash™, which allows suppliers to get paid upon invoice approval. The solution was designed specifically to help U.S. mid-market companies and their suppliers unlock much needed cash to survive and thrive in a more volatile world.
“There is a natural connection,” Rolfson said. “I really think of fintech and what Veem and Finexio are doing as being akin to rail and infrastructure providers. This is stuff that banks could and should do because at the end of the day, everyone has a bank account. It is incumbent upon us as fintechs to make these products and services available in one package, because customers are starting to use Veem, Finexio and others without even thinking to call Chase, Bank of America, or other traditional banks. This is becoming more natural behavior.”
“Customers don’t think twice, when they get in an Uber for example, how they are going to pay for it,” Rolfson continued. “Because they can just press a few buttons on their phone. There is an opportunity for Finexio, Veem and other fintechs to bundle these products and services together that are beneficial for the consumer.”
“This is the reason why fintech exists,” Forzley said. “We provide what is not being offered by traditional providers like banks.”
More choice for investors
For investors, the rise of neobanks and fintechs are filling the gaps left open by banks and creating their own niches, offering abundant investing opportunity. A number of prominent fintechs are expected to go public in 2022, including Stripe, Instacart, Klarna, and Chime. This is following a banner 2021 in which Robinhood, Blend, Freshworks, Remitly, NerdWallet, Expensify, Nubank, Coinbase, Billtrust, Metromile and SoFi all went public.
Going forward, both investors and consumers in both B2B and B2C are likely to benefit from more choice and innovation.
Be sure to check out this episode of our ‘B2B Cashflow Conversations’ podcast with Marwan Forzley, Founder & CEO of Veem.
Five “Secrets” Every CFO Should Know
Accounts payable has traditionally been an integral part of the business, providing a necessary function in the financial cycle. However, it is now being recognized as not just a cost center but also an opportunity to grow profits and scale your business.
In order to achieve business growth, it’s important for CFOs to focus on finding and funding solutions that will drive long-term growth. To help you understand how your AP department can lead your company to better cash flow management and drive more value, we’re revealing five “secrets” all CFOs should know.
“Secret” #1: Leverage Technology to your Advantage
Technology has revolutionized the accounts payable process, making it faster and more efficient. Automated invoice management systems can help you quickly identify and pay invoices, while supplier payment portals allow you to make payments online without having to go through a middleman. Streamlining these processes will not only free up to 84% of your AP staff’s time, but you’ll reduce costs by eliminating manual, paper-based payment processes.
“Secret” #2: Partner with suppliers to make payments faster and more convenient.
This will improve supplier relations while freeing up cash and reducing the time it takes for funds to be received. Suppliers are motivated to get their money faster and more conveniently, so it’s a great place to start. Suppliers want a say in how they get paid and will adopt a solution that provides a payment method that is fast and easy for them. As an added benefit, you can drive value back to your business with early payment discounts and cash-back benefits from rebates and incentives.
“Secret” #3: Forecast Cash Flow and Allocate Resources Accordingly
In order to make sound decisions about where to allocate its resources, a company needs to have an accurate view of its current and future cash flow position. Accounts payable can help the broader business by forecasting cash flow and providing insights into how different decisions will impact the company’s financial position.
“Secret” #4: Control Costs by Implementing Supplier Payment Best Practices
Best practices for supplier payments can help a business save money on administrative and processing costs. This includes negotiating better payment terms with suppliers, taking advantage of discounts for early payment, and using electronic payments whenever possible.
“Secret” #5: Focus on Cash Flow, Not Just Efficiencies
Cash flow is one of the most important drivers for business growth. Accounts payable can lead the way by expanding its responsibility and becoming better stewards of cash flow for their company. That starts with rethinking how paying suppliers can maximize revenue while cutting costs at every turn.
Hopefully these secrets have provided some insight into why your AP department should be focused on driving long-term sustainable revenue growth, not just controlling expenses more efficiently.
Want to learn more? We’ve got you covered! Check out our latest webinar on-demand to learn more about turning your AP department into a value driver for your business.
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