Fintech for SMEs

Fintech mobile phone bankingFintech is a topic much discussed in business publications, often in hyperbolic terms, but very few can define it precisely.

Initially, Fintech, short for financial technology, was the word for the technology used in the plumbing as the back-end of established consumer and trade financial institutions.

However, according to the online financial dictionary Investopedia, Fintech now denotes a range of technological innovations in the financial sector, including in financial literacy and education, retail banking, investment and crypto-currencies like bitcoin.

This wider definition more accurately describes the range of possibilities for SMEs to use financial services and engage with the financial sector especially as some Fintech services, we would argue, are revolutionary and open up services that were previously only available to large companies.

Part of the problem lies with the mainstream banks, lenders and most of the traditional suppliers of financial services including factoring, invoice discounting, fund raising and advice, who have remained deeply conservative in the way they do things and the way they charge for their services. Many have not benefited from the technology revolution, or if they have they haven’t passed on that benefit to SMEs.

How can SMEs benefit from Fintech?

SMEs can benefit from significantly reduced costs by bypassing traditional ways of using financial services, and in many instances by bypassing the traditional suppliers.

Fintech has done much to disrupt traditional models, for example, peer to peer lending via firms like Ratesetter and Zopa and equity crowdfunding via CrowdCube or Seedrs has grown. These online platforms now provide alternative sources of lending and investment to SMEs who no longer need to use their bank or finance brokers to fund their business.

Entrepreneurs can, via an online platform, pitch directly to the world for loans or investment in their companies and ideas. While they may still have to produce a sound business model and show that there is a market for their idea, online models can speed up the funding process dramatically.

Another benefit of Fintech has been mobile payment and currency conversion as innovative methods of swiftly and economically transferring funds across geographical borders. Online and cross border payments are undergoing a secondary Fintech revolution with Blockchain technology and crypto currencies like Bitcoin and Ethereum gaining traction.

Blockchain, as an open, distributed ledger system that records transactions between two parties efficiently in a verifiable and permanent way, is likely to fundamentally change the way we do business and offers opportunities that none of us have yet considered.

Payment systems, such as Go Cardless, Paypal and Stripe alleviate the cost and bureaucracy of invoicing and collecting payment, removing the need for debit cards, credit cards and expensive merchant service accounts.  This is of benefit both to consumers buying online and to businesses selling goods or services to consumers and to other businesses.

Other areas where Fintech offers fast and efficient services are in monitoring, tracking and managing accounts and financial transactions. Mobile technology provides users with information in their hand to provide accurate information and allows entrepreneurs to make timely decisions.

Finally, for those who have the skills and knowledge, the opportunities for developing ever more innovative and useful Fintech ideas and converting them into a viable business are only going to increase.

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