How FinTech Can Jumpstart the Economy
COVID has caused a massive disruption in world economies. Most of the hardest hit by the pandemic are SMBs who employ less than 500 employees. These companies comprise 99.7% of all businesses, which means that being exposed to the effects of the COVID pandemic has affected almost all businesses and employees in the US.
When looking at the banking and finance sector, COVID exposed the banking sectors in ways that shocked the industry. Some of the problems the financial industry is facing are large losses from loan defaults and increases in risk-weighted assets that take a toll on the bank’s reserves and capital. Moreover, the pandemic has exposed vulnerabilities in the sector that could tip a financial crisis when not addressed. Some vulnerabilities include changes in creditworthiness of borrowers, lack of data on crisis conditions, exposure to non-performing sectors, and the need for socially responsible collections.
The rise of FinTech has never come at a more perfect time to support the financial industry especially in their current weaknesses and in addressing their needs to cope with the challenges in the “new normal”. Because capital is one of the largest concerns of banks, FinTech can help banks minimize fixed expenses and make many expenses variable since most rely on transactions and volume. Moreover, it is helping financial institutions expand their capacity and help strengthen their systems due to higher transaction volumes with the expanded capacity. This ability to build capacity and minimize expenses is one of the things that companies can capitalize in to get back in the game.
FinTech is not only supporting the financial industry, but is also supporting businesses to get back on their feet. Here are three ways FinTech is also helping SMBs:
1.Enhance financial inclusion
Digital banking has opened the door to serve specific sectors, including vulnerable groups that hedges exposed SMBs to the problems brought about by COVID. This enables the FinTech companies to improve the variety and efficiency of financial services and makes it possible for the financial sector to finally reach SMBs that have traditionally not been serviced by the traditional financial industry. Innovations like crowdfunding loans are on the rise because of the different needs they are able to serve. According to the Asian Development Blog, this flexibility brought about by FinTech can now service 40% of unmet demands from SMBs. Because of this, businesses that would go under in normal circumstances have a better chance of surviving with the number of available services at their disposal.
2.Broaden access to financial service
Traditional financial services have always been stringent and are often restrictive to SMBs, especially with the “new normal” circumstances that businesses find themselves in. The arrival of FinTech has enabled financial services to come up with a variety of innovative solutions to fund SMBs and respond to their varying needs depending on the situation of the business. Some of the innovations that help SMBs include automating grant amounts and automating loan processing and PPP applications.
3.Increases agility of businesses
One of the most important features of a resilient company is its ability to respond to the changing economic landscape. The greatest test of flexibility is how companies are able to respond to crises like the COVID pandemic. SMBs are often seen as adept at pivoting better than large companies and should be more resilient. On the other hand, they are also challenged by the more limited resources available for them to make the change. This is where FinTech is able to help. They can help companies adopt solutions to help them pivot, such as online payment capabilities.
With FinTech solutions offering SMEs opportunities that would otherwise be closed off to them, businesses should grab the opportunity to help them adjust. From funding to business operations, FinTech is proving to be the key to help SMEs survive even in times of uncertainty.
