Fintech a lending hand – about to be bitten?

2008 crisis saw SMEs feeling the pain. The rest as they say is history.

Any business aside from having a good bubble in the BCG matrix needs elements such as – banks, payment processing, business services, working capital, resources to raise capital, credit scores, invoicing and accounting solutions to work well together.

Fintech has been a friend, a lending hand to many businesses when their trusted partners and advisers (read banks) have looked away. With a solid customer base already built, technology has laid the foundation for the Fintech firms to ride the next wave of change. Fintech can enable this well-oiled machine. As Philippe Gelis talks about the marketplace bank and its inevitability, the sustenance of such a model will heavily rely on dare’g (data-reputation-regulation).

From payment platforms to treasury services businesses have ready access to the entire suite of Fintech companies to add usefulness to their processes and positively add to the value chain at an attractive price (or low-cost). For the recipient businesses this is an opportunity to grow, receive advice, enhance reputation in the Fintech marketplace and in-return share the data. The Fintech firms are present every step of the way. The challenges are not insurmountable, as yet. As we start to look through the forecasts (read: interest rates), business management issues (read: balance sheet) and disclosure issues (read: regulation), the telescopic view might just hit the eyeball in the wrong spot. There in perhaps lies the value.

Lending firms are increasingly partnering with either the banks or the governments as a source of capital. The mission for lending companies is to provide the promised return with minimal default rate and simultaneously helping businesses grow. Payment platforms have a singular task of delivering the payment as agreed with the vendor. There are three elements that are intertwined – outage, price and encryption whilst ensuring credit and debit activity on the correct account. Short-term loan or working capital lenders have a critical task of real-time transaction monitoring, invoice credit, payable-receivable management and ensuring not just returns on loans but preventing domino effect on the model. Business credit scorers have to maintain the freshness and reliability of their scoring algorithms. All of this culminates into requiring tremendous amount of processing power and undeniably understanding of the regulation.

This is a space where study of the business models and approach to addressing process and value needs impeccable attention. Every element has two sides – the borrower (consumer) and the Fintech company. It all narrows down to data and reputation. Regulation and the regulatory tangle is the known unknown and is yet to land. For the Fintech commercial bank business model to succeed the Fintech firm has its contests and quests quite clearly marked.

As the critical mass accumulates and the focus shifts on quality of data, reputation analysis and how the regulator will prevent disasters, this section of the blog will focus on startups and matured businesses setting trends in this space and focusing on Data-Reputation-Regulation (dare’g).

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