Peter Lomax, Partner at Thomas Westcott Chartered Accountants, says that fintech is helping a growing number of the region’s SMEs.
At its heart, FinTech is all about disruption and shaking up old financial institutions with the use of technology. While the term (which combines the words ‘financial’ and ‘technology’) might conjure up images of cutting edge tech businesses, some of the latest FinTech developments could benefit businesses of any sector or size.
FinTech has reinvented much of retail financial services. You can now insure yourself to drive a friend’s car for an hour via an app, pay in a cheque without leaving your sofa, or move money from one currency to another using a bank that has no branches. Examples of popular FinTech apps include banking apps Monzo and Klarna and car insurance app Cuvva.
FinTech just doesn’t benefit individuals, however. The technology is also hugely relevant to small businesses. In fact, FinTech companies earn more revenue from small and medium sized business (SMEs) than any other market sector. Some of our clients are now making use of these new technologies.
FinTech could benefit businesses in a number of ways. Here are five.
- Processing payments more easily
One of the easiest ways for businesses to start using FinTech is through payment processing. FinTech apps can provide much cheaper access to card readers and can accept contactless payments via a portable reader linked to a mobile phone. This means that, whether you have a fixed retail site or work at your customer’s premises, you can easily accept payment at the point of sale. This offers obvious benefits to cash flow, as well as reducing the cost of accepting payments.
Online retailers can also benefit from point of sale finance. The software links to the company’s website, offering finance options to customers as they browse the website. Customers can then make three monthly payments, or, for larger items, spread the payment over a longer period. This has been shown to increase conversion, which, in turn, increases turnover.
Several of our clients use payment app i-zettle, which can post automatically to QuickBooks or Xero.
- App based banking for business accounts
Mobile app-based banking isn’t just for consumers. Many challenger banks, or small retail banks, offer business accounts. These can have lower charges and offer additional features when compared to traditional business banks. They can integrate seamlessly with cloud accounting services and provide detailed reports to show businesses how their money is spent. Some also provide neat invoicing tools, so you can see which invoices have been paid, and, more importantly, which remain outstanding.
- Making finance cheaper and more accessible
FinTech companies have also shaken up business borrowing with peer-to-peer lending, which offers quick access to cheaper loans. Peer-to-peer lending means that loans (and risk) are shared across a number of lenders. This means some businesses which might have been excluded from finance in the past can now get access to debt. Some invoice financing companies have also brought a FinTech twist to their business, including one that uses a reverse auction which ensures that each invoice, or batch of invoices, is sold to the lender willing to offer the best price.
- Easier international payments
Developments in banking have also brought innovation to sending and receiving payments internationally, which can give importers and exporters a critical advantage. By linking several currencies into one account, companies can easily make or receive payments in multiple currencies without having numerous bank accounts. Conversion between currencies is much easier too. Such systems can also allow companies to present local account details to their customers – so it’s as easy for a customer in Hong Kong to pay you as it is to pay the company next door.
- Driving down costs and increasing turnover
As the above points show, FinTech is not just driving down the cost of doing business, it’s also helping some SMEs to increase turnover. Small business can use FinTech platforms to perform a whole host of activity including offering finance options to customers, processing expenses, carrying out banking, accessing new sources of finance, driving down the costs of existing sources of finance and speeding up customer payments. A number of our clients use Hubdoc or Receipt Bank, which takes their expenses, reads the data on the receipt or invoice, and makes the posting to their accounting software.
Peter Lomax is a Partner in Thomas Westcott’s Weston-super-Mare office, with more than 20 years’ experience of working with businesses of all sizes and across a range of sectors.