SMEs: COVID RECOVERY Chaos theory: Has the worst economic shock since World War Two, finally shown SMEs the value in digital?
Bravenewworlds As small businesses emerge from the black hole of 2020, three observers of the crisis discuss how alternative financial services have been striving to support them Much like the crew of the Star Ship Enterprise, fintech entrepreneurs are compelled to boldly go where (in their case) no financial services have gone before. And that took them on an extraordinary journey last year, when Earth itself began to feel like a strange new world – and a scary one for many small businesses. As countries locked down, tens of thousands of small and micro businesses suffered a repeat of the credit crunch: cash flows froze, some business models became obsolete overnight. But, for others, markets opened up as consumers clamoured for home deliveries and online services from behind closed doors, which created demand for new payment mechanisms and capital to help them adapt and grow. Amid all this chaos, the meagre cash buffers held by SMEs were exposed. A report by Nucleus Commercial Finance revealed that around a quarter of UK SMEs had little or no reserves to fall back on, while the same was true of half of sole traders. Research from business lender MarketFinance painted a frightening
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picture of a majority of small businesses who predicted that they wouldn’t survive to see 2021. Given fintech lenders’ inherent agility, the crisis should have – and to some extent has – been a fantastic opportunity to step into the gap left by slow-moving incumbent banks to service SMEs. But, in the UK at least, emergency government loan schemes, which were initially interest-free, eclipsed anything alternative lenders could offer due to their incredibly generous terms. Small business lenders found themselves clamouring for attention, when few were initially trusted to be among the institutions distributing those loans. Financial technology trade body Innovate Finance raised fears that fintech customers would leave and may never return, while the Federation of Small Businesses recognised competition was under threat. And yet many did manage to maintain their profile by doing what they were built to do best – approve much-need loans in minutes, rather than the days or weeks incumbent banks had hitherto taken, and moving quickly to adapt their product offer to meet changing needs. Iwoca, for instance, launched IwocaPay, which paid suppliers up front and gave buyers 90 days to clear their balance. Paytech SumUp offered the capacity to accept mobile payments to all of its merchants, alongside an invoice service,
merchant gift cards and a rescue fund for customers on the verge of collapse. Quotevine released a software-as-a-service tool for commercial brokers to support SMEs with credit from asset finance firms. And, beyond the UK, Credijusto in Mexico was just one example of fintechs going at warp speed when it secured $100million of debt funding from Credit Suisse to extend loans to its SME customers. The list of examples goes on. Manu Saadia, American author of the 2016 book Trekonomics, which examines economics from the perspective of the Star Trek film and TV franchise, believes fintech has teleported to another level in response to the changing world order and it is now the engine room for innovation. “Banks have almost outsourced the innovation part of their businesses – the tools provided by fintech are so convenient, consumers want them, so banks are going to buy,” he says. “The banks that survive the disruption of the next few years will be those that forge such alliances. It will be the natural way for innovation to become pedestrian.” Analysis by Santander’s invoice and expenses tracking app, Asto, found that around 80 per cent of SME bosses it spoke to would now use digital tools, such as apps, accounting software and alternative finance (although, ironically, Asto itself will be wound up this year). And as repayment plans on those government loans begin to fall due in www.fintechf.com
