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 208 - Fanning the Flames: Glenbrook's Payments Boot Camp Intensive
Episode 207 - Fanning the Flames: Payments Post #4
Episode 206 - What’s Hot, What’s Not, and What We’re Watching: Checking in at 2023’s Halfway Point with Glenbrook
Episode 205 - Why Simple Questions Can Be Hard To Answer, with Klas Bäck, Founder and CEO of Pagos Solutions
Episode 204 - Are We Ready to Pay by Bank? A Conversation with Eric Shoykhet, CEO & Co-Founder of Link Financial Technologies
Episode 203 - What Big Data Revealed About BNPL Consumers with Kristin Carlson and Zach Tondre, LexisNexis Risk Solutions
Episode 202 - Innovating at the Intersection of BNPL and Embedded Commerce with Bobby Tzekin, Founder and CEO of Wisetack
Episode 201 - Fintechs, Banks, and the Companies Joining Them Together – In Conversation with Tarun Gupta, Jump Capital, and Chris Uriarte, Glenbrook Partners
Episode 200 - Fanning the Flames: Payments Post #3
Episode 199 - Elevating Payments to the C-Suite - Vivek Sharma, Head of Revenue and Finance Automation, Stripe
Episode 198 - The Rapid Rise and Bright Future of Pix with Carlos Brandt, Head of Management and Operations for Pix at the Central Bank of Brazil - Pix Series #3
Episode 197 - The Core Processor's Perspective with Carlos Netto and Sarah Hoisington, Matera - Pix Series #2
Episode 196 – Fanning the Flames: PaymentsPost #2
Episode 195 - Fast Payments Reach a Transformative Stage - Pix Series #1
Episode 194: Fanning the Flames: Fast Payments, Digital Currencies and Fraud - Recent Conference Updates
Episode 193 - Fanning the Flames: Help! Am I becoming a Fintech?
Episode 192 - The Rising Value of Rich Account Data with George Throckmorton, Nacha
Episode 191: Fanning the Flames: A Year in Travel - Jordan
Episode 190: Fanning the Flames: A Year in Travel - French Polynesia
Episode 189: Fanning the Flames: A Year in Travel - Singapore
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