Financial technology, better known as fintech, is a term that encompasses the new technology used to evolve away from traditional financial systems by offering a faster, automated, or more efficient alternative.
Although traditional financial institutions have been difficult for new technology to innovate around, startups are beginning to spearhead the fintech movement at a greater pace in the wake of the Covid-19 pandemic - delivering a range of improvements and enhancements to the ecosystem that provides a more efficient way of delivering financial services to the marketplace.
The disruption of traditional institutions has been a wildly competitive landscape in which banks have been increasingly forced to digitize their processes in order to keep up.
As the data shows, venture capital funding in fintech companies accelerated to more than $30 billion in Q2 of 2021 alone - a total that surpasses 2017 in its entirety. This avalanche of VC funding in fintechs indicates that digital transformation is set to accelerate at an unprecedented rate over the coming years.
Although digital acceleration is likely to be challenging in the world of retail - particularly for retail stores that have spent much of their existence as a brick and mortar entity with less emphasis on eCommerce - the evolution of fintech has the potential to help stores to access a global audience online. With this in mind, let’s take a deeper look at the potential for fintech and what it means for retail stores:
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Solving modern challenges for retail
According to a 2019 survey conducted by EY consisting of over 1,000 small and medium enterprises around the world, as much as 25 percent were fintech adopters. For the survey, EY considered a ‘fintech adopter’ as an enterprise that had digitized their banking and payments, financial management, financing, and insurance. Notably, a further 22 percent of businesses were considered to be on the verge of becoming adopters due to embracing three of the four specified categories.
Whilst the survey found that adoption rates were highest in banking and payments sectors, followed closely by financial management, financing and insurance, this can be particularly beneficial for small and medium businesses because of their potential need for faster access to capital.
“The typical SMB has less than a month of cash on hand. As a result, when they need a loan, they tend to need it fast,” said Karen Mills, who formerly served as the administrator for the US Small Business Administration. “However, applying for a bank loan has traditionally been an onerous process that involves stacks of paperwork and waiting weeks for a decision.”
“Pulling vast quantities of data from nontraditional sources like bank account statements, the fintech use AI and machine learning techniques to automate previously manual processes like risk modeling and credit decisioning,” Mills added. “These automated processes cut loan decision times down from weeks to minutes, with the funds arriving in a small business’s bank account in a matter of days.”
According to Mills, the development of fintech services will help to safeguard the future of small retail stores far better - should another downturn reminiscent of the Covid-19 pandemic emerge in the near future.
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Driving borderless payments
The pandemic accelerated the push towards cashless payments for retail companies. Whilst this process may have been daunting for small retailers, the rise of fintechs designed to support businesses accepting online payments from customers has helped to smooth the process as a whole.
Particularly the growth of innovative payment firms like Stripe, PayPal, Circle and Venmo have helped to remove the boundaries between retail stores and online customers in a more efficient and secure manner.
In addition to this, eCommerce oriented fintech solutions like Shopify and Big Commerce have worked to make it far easier for small businesses to create eCommerce sites to help broaden their reach. As an example of this, Shopify enables businesses to reach more global audiences than ever before through Facebook selling integration. The platform also helps to leverage credit card payments from customers and enables companies to embed fully functional ‘buy’ buttons on their websites.
As a result of the significant VC funding that fintechs have received in recent months, we’re on the cusp of a new wave of even greater financial functionality for small retailers. Two notable examples come in the form of Alchemy Pay and Connectum. Built on blockchain technology, Alchemy Pay incorporates a hybrid approach between cryptocurrency and fiat cash to leverage global cross-border payments with greater financial control, efficiency and far fewer fees associated.
Connectum, on the other hand, has pioneered multi-currency one-click borderless payments that come equipped with electronic invoicing functionality and AI security systems that can be ideal for retailers intending to accept payments from overseas in a secure and swift manner.
The next frontier for retail’s relationship with fintech is set to incorporate blockchain technology into the ecosystem - offering more distributed and immutable levels of security and the prospect of fee-free transactions without the need for middlemen. With blockchain applications within eCommerce continuing to grow in the wake of the pandemic - we may see blockchain fintechs disrupt the retail sector in a matter of months rather than years.
Enhancing data security
Data leaks are a threat to businesses of any size across any industry. But in particular, small businesses in the field of retail can find themselves targeted due to their perceived lack of the same comprehensive security measures that larger, more resourceful companies rely on.
Furthermore, as more small businesses embrace digital transformation in the wake of the Covid-19 pandemic, their exposure to security threats is becoming increasingly digital, too.
According to Accenture data, cyber-attacks are costing organizations around $243,000 per incident - and taking over 50 days to resolve on average. With this in mind, it’s essential that businesses adapt to protect themselves in an online environment.
Already, we’re seeing businesses turn to biometric payments via the acceleration of fintech, where systems can automatically accept payments from a customer’s credit card based on a swift fingerprint scan or facial authorization - which also helps to eliminate friction when making payments.
Fintech software that helps to monitor the behavior of customers online is also becoming increasingly accessible and affordable - enabling businesses to develop more ways in which they can flag unusual activity before any damage occurs.
While the process of digital transformation can be a daunting prospect for small retail businesses, the development of advanced fintech practices and software can pay dividends in aiding businesses as they navigate the eCommerce landscape - creating a fairer and frictionless experience for all involved.
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Dmytro Spilka, tech and finance writer