At a time when surging coronavirus counts are once again muddying the outlook for consumers and business owners, MerchantE Chief Financial Officer Shim Steinmetz says the crisis has also provided a silver lining of sorts to nimble FinTechs that can solve merchants’ cash crunch problems. He told Karen Webster recently that smart FinTechs will listen to customers, take the market’s pulse and deliver the reasonably priced services that merchants need right now.
“An analytic partnership with your FinTech and payments provider is going to be key — especially as we’re heading into the next couple months of darkness, with COVID spiking and customers staying indoors,” Steinmetz said. “Their spend behavior — at least on-site — is going to change.”
Steinmetz said there’s a big opportunity for FinTechs to provide analytics that make it easy for small- and medium-sized businesses (SMBs) to understand their businesses.
“Bakers open bakeries because they like to bake — they don’t like to do accounts receivables and accounts payable and balance their books,” he said. They might like making cakes and seeing happy customers, but few especially enjoy managing their businesses.
“So as a FinTech, part of the value that we need to deliver is making the part of them being a business owner easier so that they can spend the time doing what they love to do,” Steinmetz said. The best way to do that is to get them their money faster, while also offering them daily, weekly and monthly business insights that reflect a true trendline rather than an anecdotal assumption, he said.
In the case of MerchantE, that includes a concept Steinmetz calls “money in, money out, money max.” He said that enables merchants to get their money faster and pay their employees and other bills quickly while helping them understand their business “so bakers can bake.”
Fast Payments Are Crucial Right Now
Steinmetz said it’s key to provide merchants with faster settlement, faster payouts and greater insight — especially right now, when the pandemic and the impending holiday shopping season are occurring at once. “That is how we partner with merchants and help them be successful in this holiday season,” he said.
Steinmetz sees fast settlement of payments as a game-changer, even if companies don’t really need the money right away. “Whether it be a personal loan or accounts receivable from credit cards, to get your money faster and control of your destiny means a ton,” he said.
Even when companies have plenty of cash in the bank, Steinmetz said, rapid settlement is about “peace of mind and the comfort of knowing” that funds have arrived.
“That mental comfort of ‘I have the money’ changes the behavior of how merchants operate, how they push off bills, how they pay bills, how they pay their employees,” he said.
Don’t Put Too Much Faith In Credit
And at a time when consumers are demanding flexibility in the form of more payment options and varying payback terms, Steinmetz doesn’t see small business lending as a slam-dunk idea.
“Credit is phenomenal — it’s a lifeline when you don’t have [money],” he said. “But it can also be a death spiral if you can’t pay it back.”
He cited American Express’s acquisition three months ago of online lender Kabbage as an example. Steinmetz said Amex kept Kabbage’s payout infrastructure capabilities but halted its lending business “because it’s just not particularly profitable.”
And as much as there will always be demand for cash from small and middle-market lenders, Steinmetz said it’s important to remember that they’re not charities supporting locally-owned businesses. Rather, they’re companies that issue loans that need to be repaid.
And given the solvency issues plaguing many small, struggling businesses right now, Steinmetz said it’s important to remember that additional funds don’t always represent a long-term fix.
“Having a lot of money doesn’t solve your efficiency or operational problems,” he said. “It just masks them until you run out of money.”
Innovation Vs. Incumbency
Steinmetz said the unbalanced competitive dynamic that seems to exist between small upstarts and giant, deep-pocketed incumbents is a narrative that’s often told, but is repeatedly being disproven thanks to innovation.
“Incumbents do what they do. They don’t need to worry about the other stuff,” he said. “Innovation is a distraction and costs money, so they let the startups figure it out on somebody else’s dime. If [a startup] is successful and proven in the market, then [incumbents] will either buy them or compete against them until they crush them. We’ve heard that a hundred times.”
He uses 1990s Walmart as an example of a dominant global incumbent that went about its business while a startup from Seattle called Amazon exploded into the online retailing scene. Although Walmart ultimately invested in its digital strategy, “it didn’t crush Amazon by any means,” Steinmetz said.
Or consider Sears. Steinmetz said an entire generation of people alive today could have never imagined a brick-and-mortar retail scene that didn’t include the formerly giant department store as a dominant player.
But he noted that even though Sears underwent all manner of innovation and expansion that any large incumbent should have done, it still got left behind because customer behavior no longer supported the company’s business model.
The moral of the story — at least from Steinmetz’s view — is that there will always be room in the marketplace for small players to take on (or at least coexist) with their larger rivals.
“That’s why you’re going to see incumbents are going to get more into this innovative space,” he said. “But I don’t think it’s going to push all of the other players out.”