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 88 - Digital Marketplaces Go Global - Tomas Likar, Hyperwallet
Episode 87 - On Launching an SMB POS Product Line - Gavin Rosenberg, TSYS
Episode 86 - Fraud Management and the E-Tailer - Rafael Lourenco, ClearSale
Episode 85 - It's Hard to Communicate about Chargebacks - Keith Briscoe, Ethoca
Episode 84 - Diving into the Deep Data Pool - Feedzai's Saurabh Bajaj and Nick Stanchenko
Episode 83 - Settlement Systems in Detail - Carol Coye Benson, Glenbrook
Episode 82 - Restaurant Payments Deep Dive - Tim McKenna, Heartland Payment Systems
Episode 81 - Real Time Payment Network Update - Steve Ledford, TCH
Episode 80 - Talking Tokenization - Glenbrook's Russ Jones
Episode 79 - The Last Mile: Domestic Connectivity in Ecommerce - Steve Villegas, PPRO
Episode 78 - Identity Verification in Fraud Prevention - Ajay Andrews, Whitepages
Voice Enabling the Digital Credit Union
Episode 76 - Payments Canada - Justin Ferrabee, COO
Episode 75 (Part 2) - Payments, Petro, and the Connected Car - Scott MacKay, First Data
Episode 75 (Part 1) - Fraud and the Merchant - Ajay Guru, First Data
Episode 74 - Payment Authentication and Identity in Context - Steve Wilson, Lockstep Technologies
Episode 73 - Fintech South, Boot Camp, and Biometric Authentication - Andrew Gowasack, TrustStamp
Episode 72 - Alipay's North American Acceptance Plan - Souheil Badran
Episode 71 - The Tech Bringing B2B Fintech to the Mid-tier Bank - Lisa Shields, FI Span
Episode 70 - Real-time Cross-border Payments - Laurence Cooke of nanopay
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