The Big Picture Of Small Business Finance

Small- to medium-sized businesses (SMBs) are finally front-and-center in the FinTech innovation boom as new platforms emerge to address a variety of financial workflows.

From accounts payable (AP) to accounts receivable (AR) to expense management and payroll, new solutions can help automate and streamline the way SMBs send, receive and manage their money.

Although they are valuable, these FinTech players all have one thing in common that could be missing a bigger pain point in SMB finances, according to Docyt CEO Sid Saxena.

“When you start scratching the surface, money movement is just the tip of the iceberg,” he told PYMNTS in an interview. “Whenever money changes hands — especially in a B2B scenario — ultimately that money has to be accounted for.”

While offering technologies that target the movement of funds from Point A to Point B can be among the most lucrative for a FinTech, it can fail to ensure that data moves along with that money. Further, noted Saxena, this strategy can make it even more difficult for an SMB owner to actually access that information and derive valuable, actionable insights.

Even with a FinTech explosion driving new innovation and functionality for the SMB user, in many ways, he said, the industry is moving further away from helping businesses obtain the bigger picture of their financials.

Disparate Data

The rise of FinTech solutions has created so-called “app fatigue,” an often-unpredicted consequence of having too many platforms operating. Multiple user interfaces and passwords that fail to integrate with each other can often unintentionally create new sources of friction by technologies designed to eliminate it.

Among the biggest is a lack of data integration. According to Saxena, it’s the result of many technologies prioritizing the seamless movement of money, but not the movement of transaction data along with it.

“There is a tremendous explosion in these services, but they’re only focusing on making money move,” he said. “But where is the money going? Who’s getting paid? What kind of services are being bought? Is there any kind of leak in the business finances? All of that information ultimately has to come in the form of insights for the business.”

It’s a growing pain point in the SMB finance back office that is raising awareness of the conundrum of modernization: technological innovation may solve some problems, but create others.

Take payments, for instance. Despite the rise in electronic payment solutions like ACH, cards and real-time networks, SMBs still often make payments via paper check thanks to the additional capital float it provides. Yet even as more businesses migrate away from checks, paper remains prevalent.

“What we’re seeing is the volume of digital transactions has grown exponentially, but the paper and documentation supporting it has equally grown in similar terms,” said Saxena. “Businesses are still receiving paper invoices, collecting paper receipts, and ultimately for compliance and audit purposes, these documents have to be managed.”

A Reconvergence Of Finances

Docyt formed as a FinTech solution designed to address this challenge by not only providing mechanisms to move money, but actually lay atop existing portals to aggregate data from those movements of funds.

At a time when SMB FinTech continues to drive innovation within specific and niche verticals of SMB finance — from employee expenses to AR and everything in between — Saxena said there needs to be greater emphasis on the big picture.

Doing so creates the opportunity for the B2B FinTech space to drive deeper connectivity between these siloed systems. While that may appear to be a modern evolution of the industry, it would, in fact, be a return to the historical viewpoint of business finance.

Indeed, said Saxena, the rise of the enterprise resource planning (ERP) system aimed to provide that holistic, one-stop-shop for all-things-finance. In recent years, FinTech has focused on making the ERP more affordable to the middle market. Up ahead, he predicted, the concept of a unified approach for financial workflows and data will reach the SMB arena, too.

Already, the market is seeing this shift as FinTech solutions designed for one workflow, like payables, expand into other areas, like collections.

“Over the next five years, we’re going to see this end-to-end complete product available for small businesses,” he predicted. “The demarcation between an accounts payable department, accounts receivable, collections, it will all go away, and the single workflows of piecemeal automation will ultimately have to start expanding into other areas.”