The global eCommerce market is a juggernaut, containing up to 24 million sellers and 2 billion digital buyers, with sales expected to reach $4.13 trillion in 2020. These staggering figures belie the challenges faced by smaller industry players, however, with only 35 percent of small- to mid-sized businesses (SMBs) surviving their first decade in operation.
Many of these SMBs turn to financing to make ends meet, but this endeavor is a minefield of its own. They often look to large national bank chains to procure such loans, but just 26.9 percent are approved, according to financing solution provider Biz2Credit. Many SMBs instead seek loans from FinTechs and challenger banks, as these alternative lenders can often approve applications with higher success rates and with much quicker turnarounds.
The August Payments Powering The Platform Economy Report explores the latest SMB financing developments, including new offerings from Payoneer, Tradeling and Google Pay, the COVID-19 pandemic’s impacts on eCommerce SMBs and why these businesses are turning to FinTechs as financing alternatives to traditional banks.
The COVID-19 pandemic has created an unprecedented level of turbulence for SMBs, as government-issued stay-at-home and social distancing orders have dramatically slashed many businesses’ revenues. A joint study between social media giant Facebook, the Organisation for Economic Co-operation and Development (OECD) and the World Bank found that upward of 26 percent of SMBs shuttered between January and May, with some countries experiencing business failure rates of up to 50 percent. The lack of travel means that tourism and hospitality businesses have been hit especially hard.
Online platforms are helping to close the gap for SMBs as their foot traffic dwindles, with alternative lending options being tapped to fund these digital initiatives. These include a new credit facility launched by electronic marketplace Tradeling in partnership with United Arab Emirates-based Invoice Bazaar and an expansion of Payoneer’s Capital Advance working capital solution, both of which provide online financing for different industries. Tradeling’s program aims to aid the hospitality industry by allowing companies to borrow up to 50,000 dirham ($13,600 USD) to spend through its platform, while Payoneer’s initiative is designed for merchants selling on online marketplaces such as Amazon.
Numerous technology giants are also dipping their toes into the waters of SMB financing. Google Pay recently launched one such platform in India, allowing SMBs to apply for loans via the Google Pay for Business app. It also enables them to participate in Google My Business, which lets them create listings on Google Maps, and Google Pay’s Spot Platform, which lets businesses customize their digital storefronts on the Google Pay app. These services may eventually become available in the U.S., as Google is known to use India as a testing ground for new services that are later expanded.
Find out more about these stories and other news in the Report.
Why Online SMBs Are Turning To FinTechs For Credit
Securing financing is critical to SMBs, as they often require credit to purchase inventory before they can accurately assess their projected sales. This commonplace process is cumbersome and riddled with obstacles, however, forcing many to turn to FinTechs rather than traditional bank lenders for financing. In this month’s Feature Story, PYMNTS spoke with Abe Shak, CEO of online accessories retailer The Time Store, on why SMBs find that FinTechs’ faster approval times are worth their often-higher rates.
More than 20 percent of SMBs fail within their first year, with only half surviving their first five. A lack of speedy financing is a primary reason for failure in the cutthroat world of SMBs, with firms often facing application rejection due to regulatory measures that impeded traditional lenders. This month’s Deep Dive explores how FinTechs are closing this gap and providing accelerated financing by leveraging machine learning, especially as an increasing number of businesses go digital.
About The Report
The Payments Powering the Platform Economy Report, a Payoneer collaboration, provides an in-depth examination of how digital payments platforms can aid merchants in overcoming barriers to securely expanding their eCommerce operations worldwide.