Banks And FinTech Team To Help SMBs Battle The Cash Flow Crunch

The small- and medium-sized business (SMB) ecosystem’s pace of digitization has been incredibly fast in the past six months — so much so that it disguises the fact that the digital transformation has actually been underway for years. Iain McNicoll, Payoneer’s vice president for SMBs in the Americas, told PYMNTS in recent conversation that small businesses began eyeing the digital ecosystem more than a decade ago during the 2008 financial crisis. But now, the pace of innovation is so fast the SMBs need financial help to keep up — and McNicoll said FinTechs and legacy banks can provide that by teaming up instead of competing.

“The stat that we’ve seen around a lot … recently is that the percentage of retail transactions that are being done online has grown as much during the pandemic as it had in the prior 10 years,” he said. “So clearly, the trend is growing — and SMBs are all understanding it’s time to grow with it.”

But growing can require costly upgrades and improvements that are particularly poorly timed considering the revenue crunch so many SMBs find themselves in. Recent statistics show that as many as 26 percent of SMBs are closing their doors for good due to the pandemic — a “devastating statistic,” McNicoll said.

Battling The Cash Crunch

Cash is often said to be king, an aphorism that’s especially true for SMBs trying to weather the current storm.

“Capital is the most vital resource for any small business,” McNicoll said. “Considering how close they are to going into the red at any moment. The idea of going months or weeks or even days without a positive cash flow is quite terrifying. So, the quick access to affordable capital is vital — not just for paying salaries and rent, but as a way to pivot their business.”

And the will to pivot is most certainly there right now. McNicoll has seen firms that Payoneer works with reinvent themselves overnight during the pandemic in terms of what they sell and how they service their customers.

For example, one company that sold travel accessories — very much the wrong business at a time when almost no one is traveling — used working capital from Payoneer to push into other product categories with greater demand.

McNicoll said that’s where FinTechs can really offer a competitive advantage, as SMBs don’t just need funds for such moves — they need them fast. For instance, he said that when Payoneer gives businesses a capital advance, the money is available in a matter of minutes and can be put to work immediately to pay a supplier or whatever else is necessary.

He added that legacy banks’ traditional underwriting processes aren’t going to work for firms already on the edge. Besides, legacy banks aren’t really set up to underwrite new business models.

Consider an online seller who uses marketplace warehouses to fulfill orders and has goods shipped directly from suppliers to those warehouses. McNicoll said that tends to confuse legacy models programmed to understand inventory as collateral. They don’t know how to properly underwrite online merchants who never actually handle the goods they sell.

“I think platforms like ours are going to become the norm going forward as SMBs come to expect more and more from their financial providers,” McNicoll said.

A Collaborative Future

But that doesn’t mean McNicoll believes FinTechs will displace legacy players. Instead, he thinks both can help the small business community better when they work in tandem.

As SMBs learn to expect new and better things from their financial providers, large financial institutions are increasingly seeing that they need to partner with or purchase FinTechs to raise the level of their game, McNicoll said, explaining why JPMorgan Chase paired up with OnDeck and American Express announced plans to purchase Kabbage.

McNicoll said what’s becoming clear is that FinTechs know their clients “quite well” — and have a much better ability to underwrite loans to them because the upstarts have a unique understanding of the relevant data. He said legacy players that team up with FinTechs can benefit from that knowledge and serve a previously underserved segment with the increasingly sophisticated products they both want and need.

“There’s a symbiotic relationship between the legacy banks and the FinTechs,” McNicoll said. “We both kind of need each other, and I think there’s real harmony coming. And in the end, the SMB is the one that’s going to benefit.”