Will 2022 be the year of the “Scooby Doo” ending when FinTechs reveal their true ambition to dominate small and medium-sized business (SMB) banking at the expense of legacy banks?
It’s a funny way of posing a serious question that’s intensified throughout the pandemic as innovative FinTechs make major inroads with SMBs quickly digitizing to transform and survive.
Framing the issue, news site Sifted recently ran a story headlined “Dear banks: this is why you’re still losing out to Fintechs” and noting that “the banking sector still hasn’t stepped up to the challenge of solving customer problems in a way that is genuinely customer focused.”
There’s been no shortage of problems to solve since early 2020, with cash flow topping the list for SMBs. Millions of Main Street businesses have long relied on foot traffic that’s been nonexistent for long periods over the past two years, and the current omicron infection wave is reviving anxieties for independent retailers looking for meaningful help in sustaining a recovery.
Nimble FinTechs were instrumental in disbursing Paycheck Protection Program (PPP) funds, introducing many SMBs for the first time to the idea that they had options beyond banks.
As Karen Webster wrote on Monday (Jan. 10), “FinTechs bundle business applications into a single platform, making it easy for them to turn features on an off as needed. These platforms are raising the expectations of what SMBs now expect from their business banking relationship.”
With an increasing sense that FinTechs are positioned to innovate a better banking value prop for SMBs faster than large legacy players, more investors are betting on small business FinTechs.
On Tuesday (Jan. 11), small business digital banking platform Novo announced its $90 million Series B fundraise. With plans to grow lending, integrations “and proprietary products that allow small businesses to send and receive money more quickly,” Novo CEO Michael Rangel said, “After speaking with thousands of our more than 150,000 customers over the last few years, one theme keeps coming up: the more you can help a small business remove all red tape and friction around cash flow, the better off that business is.”
Digital bank Rho raised $75 million in its December 2021 Series B. Co-founder and CEO Everett Cook recently told PYMNTS, “I don’t think traditional banks have failed small businesses, but I think that small businesses want more than just a place to store their money, basically.”
Late last year, SMB-focused payments platform Melio unveiled its new digital payments offerings backed by J.P. Morgan’s real-time payments and virtual card services.
In a statement, Melio Co-founder and CEO Matan Bar said, “The pandemic highlighted the need for more digital, secure, and automated payment methods. By working together, we are inching closer to solving cash flow and workflow problems that can derail small business owners from achieving meaningful growth and get them on track to meet their unique business goals.”
SMBs pairing up with FinTechs rapidly digitize operations find themselves at an advantage.
According to PYMNTS research, “Main Street SMBs that invested in technology to support digital transactions, including those made on websites, via app and using digital wallets, for example, are outperforming their peers,” with nearly 50% “more likely to have seen their revenues increase than decrease” during the pandemic.
See also: Banks Need To Embrace SMBs Or Lose Them To A FinTech That Does
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