Financial technology, colloquially known as FinTech, has revolutionized the way consumers and businesses handle their money. While the rapid development of apps and online payment structures have been detrimental to traditional banking, it’s created incredible opportunities for small businesses.
Here are some of the ways FinTech is disrupting small business practices.
As lately as 15 years before, small businesses only real option to secure financing was traditional banks. Around this time, the financial crisis occurred and resulted in stricter qualifications for small business loans. This shift left many aspiring entrepreneurs in the lurch to try and fund their dreams.
FinTech and access to online portals have opened new avenues for small businesses to secure loans to start or expand their operations. Everything from access to online title loans to three-day approval periods makes it easier for businesses in trouble to find a way forward.
The data accessible online has also helped modernize the financing process, evaluating a business’s potential rather than focusing solely on an entrepreneur’s credit history.
Another revolutionary development for small businesses is the simplification of mobile payments. FinTech has come a long way from having to take a carbon copy of credit cards for submission to the bank.
Rather than investing in costly POS systems or hardwired payment infrastructure, small businesses can now collect various types of payments from anywhere, any time. Even people at yard sales can get set up to accept mobile payments!
While little businesses are still required to pay Square and PayPal systems’ transaction fees, they aren’t locked into contracts and have no associated reporting processes.
Another significant change that’s benefitted small businesses while disrupting traditional banking is the prevalence of real-time money transfers. Traditional banks became profitable by holding funds and gaining interest. With instant transfer services, that option is no longer on the table.
Real-time money transfers also increase the need for better fraud prevention practices. Meanwhile, small businesses can improve their cash flow and benefit from receiving payment when a transaction is completed.
Traditional banks and financial institutions have invested heavily in developing and implementing payment systems and processes over the years. The development of FinTech has mainly made those systems obsolete. Now small businesses can take a peer-to-peer payment approach using apps and SaaS programs.
Many small businesses’ challenge is that replacing legacy systems will take a full upgrade, as many modern payment programs are incompatible. For newer businesses, this isn’t an issue. For established companies, however, this can be a costly and tedious transition.
Getting money from foreign customers has always introduced complexity to operating a business. In addition to ensuring the transfer method is compatible, there’s also the issue of currency exchange. Traditionally, companies require a bank account for foreign currencies or request an exchange before sending the money.
With the development of FinTech, that’s no longer the case. Now, companies can send money around the world with the click of a button, and it will automatically exchange the funds to the destination currency as needed. Paypal Services can store the various currencies, then complete the exchange upon transfer to a bank account.
Finally, the development of FinTech and streamlined integration between finance-related platforms has streamlined data collection and reporting.
Rather than poring over bank statements and reconciling manually, small businesses can automate their efforts and gain accurate reflections of what’s happening in their business. These streamlined processes improve productivity, save costs, and reduce human error.
FinTech has been a tremendous advantage for small businesses and grows more beneficial each day.
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