SMBs, paticularly micro-SMBs with fewer than 10 employees, face risks and risk challenges unique to all of financial services, Tide CEO Oliver Prill told Karen Webster in a recent conversation. Which means building financial and business services for them can be an incredibly tricky process.
These smallest SMBs, particularly in their earliest days, are a big churn risk, he noted — simply because their futures are unsure. Some succeed and grow, some die off. Tide works to make sure that more of them grow up big, strong and healthy, as that is good for its bottom line. But not every business will succeed, and a cost of doing business with early-phase companies is the risk that they might abruptly pull the plug.
The second type of related risk one can run into is credit risk, as small players are notoriously difficult to underwrite.
The goods news, says Prill, is that a lot of players in this segment don’t have credit risk because they don’t need credit.
“There is a clear differentiation between SMBs that need credit and those that do not,” he noted.
Tide is not a direct lender, though it has recently started to partner with U.K. SMB lender iwoca to help their customers access iwoca loans through the Tide platform. And because those loans happen through Tide, he noted, they can provide data — and help make tailored decisions on managing credit risk for their clients’ businesses. And so far, Prill noted, the early results have been encouraging. Though the program has not been up and running long enough to offer hard evaluable data, the pilot results have been strong — and made it clear financial services like lending are a critical part to offering a platform of services for SMB operators. They don’t all need it, Prill noted — but those that do really need it, and need it proffered in a certain SMB-tailored way.
The biggest risk area — and the one that has to be a big investment point for anyone serving the SMB segment — is the risk of financial crime, Prill noted. The vast majority of SMBs are legitimate enterprises looking to sell goods or services, but this is just a segment that attracts a handful of bad actors who want to abuse the segment.
“One of the darker sides to this sector is those who want to hide under SMBs to commit financial crimes like money laundering [ML]. For us, that means we will turn away business and not onboard those who do not meet our KYC standards,” he said.
That, he notes, requires special care in the onboarding process — as their platform has to provide two things simultaneously, despite the fact that they aren’t a natural fit. They must offer up an onboarding process that is rigorous enough to bounce cybercriminals — but smooth enough to onboard customers in a few minutes’ time.