David Feuer, chief product officer of Galileo Financial Technologies, told PYMNTS that the current financial services landscape is a challenging one for smaller firms — and especially so for the smallest of the small, the sole proprietorships that help power the U.S. economy.
“It’s not simple for small businesses to get a loan,” he said, “even if it’s a small loan.”
There’s a whole set of proverbial hoops that small and midsized businesses (SMBs) have to navigate with lenders, and the process can be arduous — stretching out over weeks and even months — and that’s if they get approved.
To address the pain points, and as announced Thursday (Oct. 5), Galileo (owned and operated independently by SoFi) said it has partnered with Mastercard to enable banks and FinTechs to extend Galileo’s buy now, pay later (BNPL) offering, via Mastercard Installments, to small businesses.
Feuer noted that among lenders, banks, especially, can leverage the data they have on hand to provide SMBs with proactive offers that take into account the company’s financial health and ability to repay the BNPL loan.
“Banks are becoming increasingly sophisticated in their use of data, and their use of AI [artificial intelligence], to make intelligent decisions about who to make their offers to,” he said.
The companies detailed in the Thursday announcement that the Galileo loan management platform enables lending clients to oversee the repayment schedule and disbursement of the loans to the virtual cards running on the Mastercard Installments program.
The partnership, Feuer said, is one that lets banks “offer these loans to SMBS before the SMBS even come to the bank and say they need the loan.” The funds, of course, can be deployed to buy inventory, make capital improvements and make investments in the business that underpin growth.
The virtual cards, he said, “are a ubiquitous payment instrument that let [SMB owners] use their loans where it makes sense.” Payment terms, he said, will typically mirror retail BNPL structures, where there will be, commonly, four payments, with 25% due upfront.
There’s an advantage that accrues to the lenders, too. The banks already have the installed base, Feuer added: The individuals forming sole proprietorships are typically the same people who’ve been using the bank as consumers and households, with checking and savings accounts — and they’re ready to “graduate” into a newfound status as small business banking customers.
While it’s a typical approach for individuals to use their personal funds to get their businesses up and running, or to scale into growth, Feuer said that the terms of small business loans, and BNPL in particular, may be more advantageous, especially in an environment where interest rates have remained stubbornly high.
These same consumers, of course, have more than a passing familiarity with BNPL. As PYMNTS Intelligence/Sezzle research has shown, more than a quarter of individuals have used the financing option in recent months; roughly half of customers would cancel a purchase or opt for a cheaper product or service if BNPL were not available.
“Businesses,” said Feuer, “have the same expectation that they have consumer-like experiences,” which means the timing is right to bring BNPL more firmly into the small business sphere.
Asked by PYMNTS about risk management, Feuer said that banks are “in a unique position” that gives them a “35,000-foot view” of the SMB’s cash inflows, outflows, income sources and bill payments.
“The banks can take that data and build a ‘risk model’” or risk models, that help target SMB in order to proactively offer tailored BNPL options.
“If we think about BNPL, it’s more of an impulse buy,” he said, “this, instead, is more of a responsible relationship that gives someone access to liquidity when they need it.”
In the months and the years ahead, Feuer told PYMNTS, banks will likely seek to customize the BNPL terms, beyond the four-payment structure. The same data that enables the crafting and proactive movement to offer SMBs BNPL (and their subsequent satisfying of those BNPL obligations) can be used to further cement the banking relationship, with revolving lines of credit or other products.
For these SMBs, he added, “Being able to offer them services along their entire lifecycle — and not just at a certain point — is a position that allows lenders to keep that relationship with that customer no matter where they are in their journey.”