The original explosion of fintech apps initially targeted consumers—from robo-advisors to online-only banks to saving apps and more. But increasingly, the industry has turned its sights toward small businesses, providing smart solutions for numerous finance-related tasks. Fintech companies focused on businesses with less than 100 employees have raised more than $10 billion since 2013. That’s a testament to the potential opportunity in the market.
But what does it mean for small business owners? Certainly, not all fintech is created equal. But at the core, many companies are offering ways to automate previously manual work, access customized financial products, and scale your finance operations—without adding more hires.
Here are five ways that fintech gives SMBs a boost:
1. Expanding Finance Options
Small business owners need capital to start and grow their companies. Nearly half of all business owners in 2018 reported that they needed external funds for their business. Banks and fintech have attempted to tackle this huge market via a variety of services from traditional small business loans to equity fundraisings to revenue-based financing to small business-specific credit cards. A hallmark of these efforts has been taking some—or all of—the application process online, making it fast and easy for business owners to understand their options.
The fintech industry has also introduced alternative forms of financing for small businesses. For example, Circle Up helps consumer goods companies finance their growth through a combination of credit and equity fundraising. Startups apply online, and Circle Up collates interested investors. Meanwhile, Snap Advance offers business owners cash advances based on a percentage of their future sales.
2. Automating Accounting
Solid financial operations and support is a critical element of any business, but it's especially crucial when you’re small and growing. A clear understanding of your finances allows you to make better decisions about where and when to invest your money, whether a loan is a smart move, and if you can afford your next hire. Despite all this, almost half of small businesses don't have a bookkeeper or accountant. Fintech applications are rising up to help fill some of these gaps. And while they can’t wholesale replace the expertise of a real-life professional, they can streamline the finance workload.
Many of the new solutions provide online software that manages invoices, accounts payable, payroll, expenses, and even cash flow forecasting. The industry is teeming with options for small business owners. For instance, TeamPay is a startup that allows companies to provide virtual credit cards to their employees and track and approve expenses in real-time. Meanwhile, well-known leaders in the space, such as Intuit, which makes Quickbooks, are doubling down by offering even more specific services to SMBs.
3. Enabling Online Payments
Payment solutions have proven key in allowing small businesses to punch above their weight and compete on a larger scale. No longer are small businesses relegated to accepting only certain types of payment methods or even payments from just inside the U.S. Square revolutionized small business commerce by making it possible for even one- and two-person businesses to accept credit and debit cards. Now whether you’re running a food truck or selling handmade crafts, you can process electronic payments from your phone.
Other applications have made it easier for small businesses to launch inexpensive online e-commerce sites—opening up their wares to the world. With Shopify, for example, small business owners can sell items via Facebook, accept credit cards and implement buy buttons on their websites for as little $9 per month. Braintree, which is a division of PayPal, expands the services further, allowing businesses to accept Venmo, PayPal, and even Bitcoin as part of their payment options.
4. Innovating Insurance
Fintech startups are disrupting traditional models of business insurance, with an eye toward providing more convenient products for small business owners. The first big change: Simplifying the process of purchasing a policy by allowing business owners to apply online. The demand for online insurers will likely only grow. While just a quarter of SMBs purchased their current insurance online, 65% anticipate they will do so in the future.
The draw may be in the products, which tend to both more affordable and more customized to smaller organizations. For example, insurer Chubb partnered with the startup Bunker to offer use-based liability insurance for contractors. The policies can be tailored to the length of the job—as short as three months—and paid for via credit through a mobile app. The cost? As low as $20 per month.
5. Expanding Retirement Options
Most small business owners experience the pressure to compete on benefits with their much larger counterparts. And providing retirement benefits that are on par with what employees at larger organizations receive is always a challenge. Consider that only four in 10 employers with less than 100 employees provide retirement plans. Fintech companies are trying to tackle this pain point by reducing the cost of such plans and making them easier to administer.
For example, Ubiquity Retirement has garnered a lot of attention for offering flat-fee retirement plans specifically for smaller companies. In another example, Betterment not only helps small companies design their plans, but also provides recordkeeping, compliance, advisory, and fiduciary services to small business owners and employees. Retirement benefits are exciting, but they are just one part of so-called HR Tech. The industry is also evolving to meet small businesses, providing automated solutions for managing all your employee benefits.
The Right Fintech for Your Small Business
There’s a lot of technology to choose from—and subscribing to a dozen fintech applications all at once not only increases your expenses, but makes it more likely that you and your team won’t utilize all of them to their full potential. Instead, evaluate your top business priorities and look for relevant fintech solutions. For example, if managing cash flow has been a long-time issue, explore fintech apps that designed to offer more finance visibility and cash flow forecasting. Or if a retirement plan has been on your to-do list, look at fintech companies that have made the benefits more affordable.
Regardless of what you choose, get your team on board. Provide training on new technology, and then monitor whether your company is using the product—and what benefits it provides. Technology continues to level the playing field for small businesses. Take the time to assess how fintech can address needs in your own business and then leverage the innovation to your advantage.