Bento helps small businesses manage cash flow and control employee spending, in part by offering a prepaid MasterCard. But when Bento was first starting out, the company itself got denied for a commercial credit card. Even with sufficient capital in the bank, the problem for Bento, as with so many small businesses, said CEO Farhan Ahmad, is that small businesses lack credit history.
Today, FinTech players are beginning to harness the power of big data to mitigate risk of small business borrowers, some going so far as to use online search histories and social media profiles to assess the creditworthiness of an applicant. While data analytics may be introducing the next wave of credit assessment and risk mitigation, Ahmad told PYMNTS that it’s not about using the most data, or using nontraditional data; it’s about applying innovative technology to assess high-quality, traditional data (think financial reports, not Facebook friends) that will bring in the next wave of SME finserv.
New Tricks For Old Data
Data is an integral part of Bento’s operations. In providing small business owners with a prepaid card, the firm also links the data from that card onto a dashboard, providing visibility into corporate funds and employee spend.
The decision to offer a prepaid card was born out of the need among small businesses to access a spend control tool without the need for credit, thus separating the “credit” out of the “credit card.” When it comes to spend management, access to data is imperative.
But Ahmad said he doesn’t consider the company to just be a prepaid card firm. “I consider it to be a cash management company that offers a prepaid card as our first product,” he said.
Big data, he explained, is also key to where Bento wants to go.
Lending is high on Ahmad’s list of goals, whether that be through Bento providing capital to small business owners directly, or striking partnerships with lending companies. The data streaming into the Bento platform from small business prepaid cards, he said, can offer lending companies robust insight into whether a small business is a safe bet to borrow.
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“We don’t report to the credit bureaus; we deliberately say that the benefit of the prepaid card is that we don’t touch your credit history and we don’t affect your credit,” Ahmad said. “However, the partnerships we’re trying to strike with some lenders means I can say, ‘Hey, the data that we have is very informative and intelligent.’”
He added that some of the newer, more innovative lenders emerging on the market acknowledge the power of this type of data. So in the traditional sense, Bento isn’t boosting a company’s credit score, but the industry is shifting away from depending on such a model for risk assessment.
“Hopefully, the way we’re trying to build the ecosystem and work with some of the newest lenders in the industry will make it easier for small businesses to get approved for credit,” he said.
Ahmad noted that while some businesses have gone so far as to look into alternative data sources like social media and browser histories to assess the creditworthiness of a potential borrower, he has more faith in using traditional financial data – but aggregating and analyzing it in innovative ways.
“Social media and those kinds of things aren’t financial information, so it’s hard to know whether they’re effective indicators or not,” he said. “I’m not saying, ‘Look, this person has this many followers on Twitter or Facebook. Therefore, they must be a good business.’”
It’s the “old-fashioned” type of data, he said, streaming in through a source like a prepaid card, that can increase transparency into a small business’ spending and money management habits.
“It’s not really a question about a new source of data. Instead, it’s about the richest source of data,” he added. “This is much more powerful than anything even traditional businesses or banks use today.”
[bctt tweet=”It’s not a question about a new source of data. It’s about the richest source of data.”]
Big data has introduced a novel way to build trust of a small business for potential creditors. But Ahmad pointed out that small business’ access to this data, when presented in a visual, engaging manner, can also build trust between employers and employees.
The rise of the on-demand market is causing a widening gap between employer and employee, Ahmad said, both geographically and in terms of relationship. It’s forcing innovators to get creative in how they can present data of employee spending to business owners. That’s why Ahmad believes the key to FinTech’s success largely exists in its ability to handle data for a small business owner.
“When I think of trends that are going to come up to help small business owners with data analytics, it’s not about the quantity of data, or heavy tools,” the CEO said. “It’s about visualization – which FinTech companies can simply tell a story?”
When these service providers can handle the burden of big data for a small business, the insight can boost trust between an owner and employee when, for example, an employee will be spending company money. And it’s the ability to handle this data on the backend that will allow the small business finserv industry to more confidently provide small businesses with the tools they need – working capital, payment technologies, even invoice management – with less of the risk.
“Data can be very predictive if used correctly,” Ahmad said. “It can be very intimidating if used incorrectly. It’s a matter of which companies will simplify it, and make it visually interesting, that will be successful. The others may not be very successful.”