Cash flow can make or break daily life for consumers or businesses. Not enough in your account? Plan on asking your landlord for a few more days to pay the rent. Not able to quickly access those funds in that check you just received? Payroll might get tricky, and maybe you won’t be able to buy enough supplies to start that next job, thereby perpetuating a nasty cycle.
But digital technology, sophisticated algorithms and new business models are helping to give some slack to consumers and small businesses struggling with cash flow. Ensuring that money keeps moving to those who need it right away served as the anchor of a recent PYMNTS “Walk to the Elevator” podcast interview featuring Karen Webster and Ken Patrick, head of market development for new payment products at Fiserv, and Victoria Dougherty, who leads product for Fiserv’s deposit risk and liquidity suite of solutions.
One might think this is an odd time to talk about how to bring more liquidity to consumers and small businesses. After all, despite recent stock market woes, the economy remains relatively strong, with low unemployment. This isn’t 2008 or 2009, when consumers were having a hard time paying their bills and small business owners were trying to keep the lights on. But, according to Patrick, “most individuals and small businesses continue to struggle with short-term cash flow management,” adding that four out of 10 consumers have such problems.
And that’s not all. As Dougherty explained, the U.S. has undergone a “culture shift in the past few decades, with a lot more folks” living paycheck to paycheck instead of building up rainy day funds that would solve many cash flow shortcomings in the short term.
One key is getting beyond the traditional and typically reactive practice of overdraft, which basically has banks creating a one-size-fits-all approach to overdraft limits and fees — a method that does not tend to take into account different circumstances for different customers, nor make any deep analysis of the daily movement of debit and credit for specific consumers.
In fact, that last part is vital to the short-term cash flow approach in the digital age. The latest technology not only monitors those movements when making risk determinations, but also takes into account other data that demonstrates how likely a person is to pay back a loan or an advance. Fiserv handles the approval process and the operational effort for the bank. Deposit risk is minimized by using Fiserv’s algorithm, ensuring that those who receive loans have the capacity and propensity to repay the loan.
Cash Flow Help
So, what exactly is offered?
Small-dollar lending is one option. That could mean, for instance, a relatively small loan that could help a homeowner make minor but needed repairs after a storm. Maybe, too, a business needs some cash to get through the next week or so — that can make the difference between meeting payroll or not, or even losing clients thanks to the inability to buy supplies for, say, a contracting job. Fiserv provides the technology that enables banks to underwrite the loans, most of which come in at less than $1,000 and are repaid within 90 days.
Money isn’t the only factor impacting cash flow – speed counts, too. Dougherty used the example of a homeowner needing roofing repair in the aftermath of a hurricane. The homeowner is able to write a check to the roofer on Monday in advance of having work start the next day. But instead of that roofer having to tap into what might be an already skimpy cash flow to buy supplies while waiting for that check to clear — even the busiest of contractors are often faced with that reality, because, she said, so many small businesses “work on a tightrope” — an accelerated funds service gets the money into the roofer’s account right away.
“Clearing time is really the challenge, especially for small businesses,” Dougherty told Webster. Fiserv integrates into a financial institution’s mobile deposit system. That means the roofer can take a picture of that check, get it immediately approved and then use those funds. “If the check goes bad later,” she said, “Fiserv will be on the hook.”
“We are the tech provider, not the product designer,” Patrick added. “We are the provider that powers those designs provided by the industry.”
That’s all right as far as that goes, but in today’s world — when digital commerce has trained consumers to expect easy shopping and transactions — a company needs to offer “low-friction products in an almost Amazon-like experience, where in a couple of clicks the customer will have the funding they need,” Dougherty said.
The timing for such offerings does indeed seem optimal, Patrick noted. Unemployment may be on the decline, and some wages up, but signs increasingly are pointing toward the approach of a recessionary cycle, he said. That means the demand for credit will increase as providers pull back supply – which, in turn, would create more of an opening for short-term cash flow services.
There seems little doubt that short-term lending and brief boosts to cash flows for consumers and small businesses will always stand as vital economic needs. Now, with digital technology and ample data, there is increasing opportunity to serve those needs while helping to keep the economy moving along.