The Fintech Phenomenon is rarely about doing something entirely new. It’s about doing things in a new way that better fits the needs of the target market. The fintech model also enables the provider to reach underserved market segments.
Lending is, of course, the core offering of banks. But between their legacy processes, underwriting requirements, compliance demands, and more, they simply aren’t nimble enough to serve new segments in our evolving economy.
And the banking crisis of 2008 left them even more risk averse.
That’s left small business lending wide open to fintechs.
Case in point: the online seller, that small business that makes a product or buys wholesale and sells direct to customers through their own website and, for most, through marketplaces like Amazon and Shopify.
Cash Flow is EverythingHere’s where success can kill a business. If their online store and what they’re selling catches on, they’ve got a tiger by the tail. They’ve already invested their own money to get the store off the ground. But they have to keep buying inventory in order to fulfill orders. Where’s the capital to pay for that inventory to come from in order to do that?
As the founder of multiple small businesses, I can tell you that cash flow management is a daily concern. It’s no different for these Amazon sellers because Amazon pays out every two weeks and it may take a month or more for the funds from some transactions to hit the seller’s bank account. With cash flow “everything” for the SMB, funding business growth is a major challenge. To keep up, you have to reinvest to feed the beast. You take all your earnings and put them into new inventory.
That’s where our guest for this episode comes in. Keith Smith is co-founder and CEO of Payability, a firm that has loaned over $2.5B since 2015 to Amazon and Shopify sellers.
Data Enables the ModelPayability, sitting between the seller and the marketplace, sees massive data sets that help it and its algorithms determine risk. Given the volume of data, the myriad sources of these signals, it’s impossible for humans to do the underwriting. Machine learning can examine far more signals than a human can ever handle. So, as Keith puts it, Payability’s staff “trains the robots” to help the company accurately price financing for those who would otherwise be locked out this kind of business.
The Money Supply ChainIn the business of selling money, you have to have access to it. You have to be part of the money supply chain.
Drastic changes in the finance ecosystem have taken place since 2008. With traditional banks stepping back from small business lending, fintechs have entered the money supply chain, as the new distributor of funds, enabled by their ML-based underwriting and risk models.
The fintech underwriting sophistication has been a boon to traditional sources of financing, both banks and institutional investors. They still sell money; they just do it through the new fintech channel.
The COVID AcceleratorAs a funder of online businesses that have benefited from the COVID-driven shift to e-commerce, Payability has prospered in 2020. As Keith put it “we’ve seen four or five years of growth out of a single year.”
In Glenbrook’s payments consulting work, our discussions with merchants, billers, sellers, and their technology parters have included this common refrain. COVID has hurt many but others, able to respond to the challenges and opportunities of the digital shift, have prospered.
Find more podcasts and commentary at Glenbrook's Payments on Fire® site, check out our blog Payments Views, and subscribe to the best payments industry news feed, Payments News. Read our COVID-19 Payments Industry eBook.
Episode 248 - The Ins and Outs of Payouts with Manish Vrishaketu, Tipalti
Episode 247 - From the Vault: Multiplayer Fintech Builds a Winning B2B Service – Robin Gandhi, TripActions (Episode 146)
Episode 246 - Going Real-Time with Dimitri Dadiomov, Modern Treasury
Episode 245 - Shining a Light on the Dark Web with Dr. David Maimon, SentiLink
Episode 244 - Fanning the Flames: Understanding Mastercard’s Announcement to "Reimagine Online Checkout" in Europe by 2030
Episode 243 - Payments, Authentication, and Identification in the Era of AI with Ori Eisen, Trusona
Episode 242 - From the Vault: Who Are You, Really? FIDO’s Biometric Authentication (Episode 28)
Episode 241 - How Open Banking is Reshaping the Financial Playing Field with John Pitts, Plaid
Episode 240: Fanning the Flames: Potential Winners and Losers in the Proposed Acquisition of Discover
Episode 239 - Talking Payments and Politics with Michele Alt and Adam Shapiro, Partners at Klaros Group
Episode 238 - Will Pay by Bank Really Compete with Cards? Trevor Nies, Adyen
Episode 237 - Is Orchestration the New Normal In Payment Operations? A conversation with John Lunn, Gr4vy
Episode 236 - How to Make Money in Payments with Russ Jones, Glenbrook Partners
Episode 235 - Taking Stock in Fast Payments with Gregor Dobbie, CEO of TFPA and former CEO of Vocalink
Episode 234 - Partnerships in the Payments Industry - Insights, Musings, and Hard-Won Wisdom with Steve Klebe
Episode 233 - How unexpected technology combinations can lead to practical payment solutions with Glendy Kam, Tassat
Episode 232 - Talking Payments and Fraud with Julie Fergerson, Merchant Risk Council
Episode 231 - Fanning the Flames: Payments Orchestration
Episode 230 - Talking Central Bank Digital Currencies with Jim Cunha, Former EVP, Federal Reserve Bank of Boston
Episode 229: What Glenbrook is Watching in Payments in 2024
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