Banks and insurance companies are not the only ones to mobilize to help companies in difficulties facing the coronavirus crisis. Fintech companies specializing in participatory small business loans also want to breathe new life into the small and medium-sized enterprises. The global economy finds itself affected by this crisis. All players in the financial sector are in limbo. Large banking networks have struggled on two fronts:
- organizing branches and remote customer service;
- setting up processes to meet state-guaranteed cash loan requests.
Kyle Drummond, financial advisor from Directloantransfer, has pointed out that fintech startups have switched to crisis management mode: widespread teleworking, implementation of short-time working, communication with customers and investors. The most exposed segments concern B2B models, in particular SMEs, asset management, etc.
Impact of the Pandemic on Fintech Companies
Coronavirus has dramatically changed the use of fintech apps and services. But if we talk about business lenders as a significant source of small business loans, they are also victims of the crisis. Lenders found it hard to take control of the devastating situation. It is crucial to be assured of a stable income and investment flow. And some fintech organizations had to stop providing small business loans and strive to get new financing sources.
But there are still successful small business leaders who have managed to stay the course during Coronavirus and offer more business opportunities for their clients. By their example, they show what methods can be used to deal with the global crisis. They are introducing new options and expanding their field of action.
Benefits of Fintech Organizations
The significant advantage of the offers from the Fintech industry is the greater flexibility and independence of the credit services from the often complex infrastructure of large credit institutions. Younger startups have an advantage over established banks. They can set up new solutions faster and more cost-effectively. It reflects in a cheaper, often more straightforward, and faster range of financing options for customers.
Fintech organizations have several advantages that give them the flexibility to stand against a current economic environment:
- A key factor is permanent customer loyalty. In the end-customer business, the reliable building of trust is a long-term challenge. Younger Fintechs have to prove that customers are satisfied. It requires constant patience and capital.
- An important step is a deliberate and systematic work to improve service quality and manage customer attitudes. Product development began to take shape based on the analysis of customer behavior, needs, and expectations.
- Fintech companies base their financing requirements on the same characteristics as their services or products. Endless credit checks and discussions with the bank or with tax advisors are counterproductive. PayPal offers merchants to get business loans.
- A classic example of Fintech products in the credit sector is the so-called P2P small business loans. Instead of coming from a bank, the money comes from private or commercial investors. They are the ones who put a lot of effort into guaranteeing financial support to businesses in the form of small business loans during Covid-19.
- One of the relatively new services offering online lending services is Trade Ledger. Despite the small team of workers, they, together with WiderFunding, Nimbla, and NorthRow, decided to bring the finance initiative to life. They have created a task force that enables private lenders or banks to provide small business loans to companies in need of financial support.
- To stabilize the situation, US Congress members passed the CARES Act. Various fintechs provide valuable information about the SBA and other organizations offering financial assistance to companies. For example, they support the following programs:
- One of the payments to small businesses amid the pandemic was made under the PPP program. This remote business loan system allows organizations to apply for low-interest loans for payroll, rent, interest, and utilities.
- Small non-profit organizations can apply for an EIDL. It provides economic assistance to businesses that are currently experiencing temporary loss of income.
A Room for Improvement
For large classical companies (for example, for banks with their complex organizational hierarchy and regulated processes), the very idea of flexibility is a serious challenge to their business identity. A culture of control and a culture of risk management are essential characteristics of banks due to strict requirements. While banks cannot cope with stabilizing the financial situation, fintech continues to look for new development ways.
Covid-19 has brought more than just setbacks, downfalls, and difficulties for fintech companies. Any crisis generates a product that will withstand stronger recessions in the future. By leveraging existing banking technologies, fintech startups are likely to partner with banks, reaping mutual benefits. Business models of financial organizations may change significantly after the pandemic.
Classic financial organizations now more than ever need up-to-date solutions. But due to their conservatism, they find it very difficult to create innovations. Fintech organizations, on the contrary, can generate exciting solutions. Thus, there can be a valuable interaction scheme when fintech makes new services and transfer them to banks.