Fintech Lending Trends Transforming the Small Businesses

Sneha Hull | May 13, 2022 | 131 views

Fintech Lending Trends Transforming
Fintech lending trends are enabling small business owners to access fresh funding through AI, machine learning, and big data. Fintech is a fast-growing section of the financial industry, yet little is known about its performance. For an extended period, borrowing from banks was difficult for startups, small companies, and entrepreneurs; however, the expansion of industry and Fintech solutions has prompted lenders to assist small businesses using the newest AI and data analytics technologies.

“Many of the processes associated with running an SMB have traditionally been very paper-based, difficult and slow. But with the advent of new technological solutions, all of these processes will be transformed.”

- Karen G. Mills, a senior fellow at Harvard Business School and author of the book Fintech, Small Business & the American Dream: How Technology Is Transforming Lending and Shaping a New Era of Small Business Opportunity.


The global financial industry is predicted to reach US$26.5 trillion in 2022, growing at a 6% compound annual growth rate. (The Business Research Company, 2020)

From 2021 to 2025, the worldwide Fintech market is expected to increase at a CAGR of 23.58%. (Research and Markets, 2020)

Small companies encounter a few significant challenges when it comes to financial management. Let us take a quick look at a few of them.


Pain Points for SMEs

Bank lending is frequently constrained because it takes more time and knowledge to comprehend small businesses than to grasp more standardized consumer enterprises. Also, due to the smaller loan amount, the typical relationship-based corporate banking model is expensive when dealing with small enterprises.

Frequently, small businesses lack the required information, such as a history of audited financial statements, for banks to accurately analyze their cash flow position. In addition, banks are reducing their exposure to small firms due to regulatory requirements.


Future of Fintech: B2B Lending

By reorienting customer expectations, Fintech lenders have changed the future loan ecology. Fintech loan approval enables businesses to grow their assets, employment, and sales. Financial technology adoption is critical for small business growth and results in a greater return on investment.


What’s Changed in B2B Lending Fintech?

Offline businesses have historically relied on traditional financing, but online enterprises have always relied on equity. There are several trends that organizations should monitor, including the following:

  • Cross-Border Payments
  • B2B Lending Solutions
  • Conversational Artificial Intelligence
  • Accounts Payable Automation
  • Electronic B2B Payments
  • Smart Contracts
  • BlockChain

Emerging Fintech lenders are addressing this issue by doing more sophisticated creditworthiness assessments using real-time analysis of more data inputs. OnDeck is one such fintech lender. In addition, it uses machine learning to determine the creditworthiness of small enterprises.


Debt vs. Equity in Financing Your Business

Things with a return on investment of less than one year may make sense to finance using debt, as the return will be reasonably soon. On the other hand, it makes sense to fund long-term investments through stocks.

Direct debt is a relatively new phenomenon in the world of Fintech firms. However, Fintech firms have various financing options, and depending completely on debt may be a sensible financial decision.


How Can Businesses Take Advantage of Fintech Innovations?

"In order to achieve the most from Fintech opportunities, companies in financial services need to treat Fintech innovation as a mainstream activity — and incorporate it within and across their entire organization."

-  Tek Yew Chia, Fintech Leader for KPMG in Singapore.

Fintech organizations use AI and machine learning to automate manual processes such as risk modeling and credit decisioning. The adoption of Fintech solutions is having a profound effect on business operations. The following are the top three

reasons why small and medium-sized businesses should invest in Fintech services:
  • The scope of its capabilities and features
  • The services are available for 24 hours a day
  • The service's simplicity of installation, configuration, and use

According to Weforum research, equity investment in FinTech startups doubled from $4 billion to more than $12 billion between 2013 and 2014. Due to the efficiency and effectiveness of FinTech solutions on a smaller scale, small firms will be one of the primary beneficiaries of FinTech's disruptive impact. Numerous firms benefit from enhanced, innovative Fintech solutions; here are a few highlighted examples.


Reduced Costs

Through the use of Fintech, the integration of physical and digital payment methods has been consolidated by combining bank account cards and client ids. This strategy enables organizations to operate more efficiently and at a lower total cost. Financial technology makes it possible for companies to send and receive money in different currencies without having to pay a lot in conversion fees. This speeds up the process of Fintech lending.


Compliance and Security

Many users disagree that Fintech Lending is secure. However, Fintech solutions are far more secure and safe than traditional banks. In addition, Fintech companies frequently invest heavily in their security infrastructure, both online and off. As a consequence, clients have confidence in the security of their data. Regulatory actions assure sound finances, governance, risk management, and compliance capabilities, therefore minimizing threats to the public safety net and potential harm to customers. Fintech firms do adhere to these regulatory requirements.


Increased Transparency

With the widespread use of Fintech in traditional banking, the phrase "transparency" is no longer a buzzword. Transparency in the payment sector also entails providing better visibility on payment timelines and outlining the path a customer's money will take during the payment journey. International payment solutions are redefining how the worldwide remittance process is seen. Notifying customers at critical points in the payment process, such as when money is received from a client and when it reaches a beneficiary's account.


Overview of a Provider


Amazon

Amazon Lending was formed in 2012 to extend finance to small businesses selling on Amazon. Amazon's internal algorithms choose vendors based on data elements such as merchants' frequency of out-of-stock situations, the popularity of their items, and inventory cycles. Amazon provides retailers with three- to six-month loans ranging from $1,000 to $600,000 to assist with inventory purchases. According to reports, the firm charges up to 13.6% yearly interest rates.


Conclusion

Fintech has the potential to significantly and sustainably change small business finance, hence stimulating economic development. Furthermore, by integrating into the Fintech ecosystem, small businesses may access a variety of previously unavailable options.

Disrupting the closed-door world of traditional financial institutions and mainstreaming alternative, technology-driven solutions creates a new industry while also enabling more entrepreneurs to start and grow their businesses.


FAQ


How is Fintech impacting the business?

Fintech is transforming payment processing, money transferring, funding, accounting, and e-commerce. It helps businesses improve the process and create operational efficiencies.


Why is Fintech so popular?

Fintech helps businesses gain a share of online and offline markets, increase the customer base and achieve ambitious business goals.


Which technologies are utilized in Fintech?

There are some critical technologies in the focal point of discussion: Blockchain, Artificial Intelligence (AI), Security, the Internet of Things (IoT), and the cloud.

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Counterpart Launches AI-Powered Crime Coverage For Small Businesses Backed by Aspen Insurance

Counterpart | September 16, 2022

Counterpart, the AI-driven management liability insurtech for small businesses, today announced the launch of Crime insurance. The policy can be purchased on a standalone basis or packaged with its existing Directors & Officers, Employment Practices, and Fiduciary insurance lines. Backed by Aspen, the Crime insurance expansion reinforces Counterpart’s commitment to using its cutting-edge technology to address critical exposures of small businesses.Employee theft costs businesses $50 billion annually, and costs are rising at a rate of 15% per year, according to the U.S Department of Commerce. The new offering helps identify employee theft and social engineering perils by utilizing Counterpart’s proprietary machine learning-based underwriting system, which includes employee sentiment analysis, as well as proactive risk mitigation guidelines. “Small businesses often lack the internal auditing and risk management capabilities of larger businesses, which can make them more susceptible to Crime risk. Our extensive underwriting experience, proprietary data infrastructure, and increased market presence have enabled us to craft a Crime product that complements our existing insurance lines,We are grateful for the continued support of the well-respected team at Aspen, along with many of our broker partners, who have helped us develop a very competitive product.” Mike Levins, Head of Insurance at Counterpart Crime insurance is available for small businesses with less than 250 employees and less than $100 million in revenue and total assets through Counterpart’s wholesale broker partners. “Counterpart continues to impress CRC Group and the brokerage community with its effective and efficient quoting and binding tools. Now, with their Crime capabilities, we can rely on Counterpart as a one-stop shop for comprehensive management liability coverage for our valued Insureds,” said Dan Lazarz, Director, CRC - ExecPro Group. “Counterpart has established an impressive track record of innovation,” said Zac Clammer, Executive Vice President, Management Liability at Aspen. “We are pleased to continue developing our partnerships with Counterpart across the growing portfolio of excess and primary small business insurance products that we are bringing to market.” Small businesses should contact their broker about Counterpart insurance coverage and can learn more about Counterpart’s products and services by visiting: yourcounterpart.com About Counterpart Counterpart is an AI-driven management liability insurance solution for the 21st century workplace. The company offers modern Directors & Officers, Employment Practices, Excess and Fiduciary products for small businesses. Through data mining and advanced analytics, the company's rating systems measure risk more efficiently while requiring less information from the broker and applicant. Counterpart’s distinctive approach to underwriting is complemented by a suite of products and services that help brokers and insureds proactively manage exposures throughout the term of the policy. For more information, visit yourcounterpart.com About Aspen Insurance Holdings Limited Aspen provides insurance and reinsurance coverage to clients in various domestic and global markets through wholly-owned subsidiaries and offices in Australia, Bermuda, Canada, Singapore, Switzerland, the United Kingdom, and the United States. For the year ended December 31, 2021, Aspen reported $13.8 billion in total assets, $7.6 billion in gross reserves, $2.8 billion in total shareholders’ equity, and $3.9 billion in gross written premiums. Aspen's operating subsidiaries have been assigned a rating of “A-” (Strong) by Standard & Poor’s Financial Services LLC and an “A” (“Excellent”) by A.M. Best Company Inc.

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