What Is Fintech for Small Businesses?

Fintech, simply put, is an amalgamation of the finance systems of the future. More accurately, they are the tech systems that are used to optimize financial processes and enhance security. In the past, fintech was used to describe more behind-the-scenes operations in which lenders and banking institutions used digital means to enact back-end transactions.

Now, fintech has extended to the consumer with technologies such as mobile applications and online platforms. This type of hands-on tech has allowed people to manage their daily finances without going through big banks in person—or even at all. Today’s customers have more freedom and control over their money. Examples include mobile apps such as Venmo and PayPal or automated stock platforms including Robinhood.

When it comes to the future of financial services, fintech is advancing to meet the needs of more savvy small businesses. By leveraging fintech, small business owners can enjoy more secure transactions on a smaller scale. This, in turn, provides a more enjoyable customer experience. Let’s take a look at the six overarching technologies that are poised to change the fintech future—for small businesses and beyond.

Artificial Intelligence

Artificial intelligence (AI) has long lived past its buzzword days. In fact, small businesses will soon see AI integrations in almost every part of their financial processes.

Similarly, robotic process automation (RPA)—the automation of financial processes and accounting reconciliation for financial institutions—will help small businesses in the following areas:

• Accounts receivable and payable

• Fund appropriation at shared service centers

• Employee timecard and pay adjustments

• Financial records

• Tax reporting and other treasury processes

Using RPA allows for the reduction of human error and faster processing times. For small businesses, this can free up valuable time and resources.

Blockchain

Blockchain has several practical applications for small business finance, as its decentralized nature and use of distributed ledger tech reduce the risk of a data breach. Small businesses rely on meeting their customers’ needs, and this includes keeping their information safe and secure. The cost of a data breach is often too high for small businesses to stay afloat, so tech such as blockchain is key. It offers transparent, tamper-proof transactions and will likely be implemented by small businesses more often for enhanced security.

Internet of Things

The Internet of Things (IoT) allows everyday objects and processes to be connected to the internet. IoT technology has several benefits for small businesses, including in fintech. For example, SMBs can install self-service kiosks that give customers access to streamlined checkout or even on-demand products.

Embedded finance is a similar concept. It takes financial processes—including loans, debit cards, and insurance—and integrates them into almost any non-financial product. For small businesses that utilize e-commerce, this is invaluable. It speeds up transactions and allows for easier and, by association, more frequent sales.

Behind the scenes, small businesses can use IoT to manage inventory. Supply chain disruptions can be detrimental to businesses of all sizes but especially smaller players. With the IoT, inventory payments and other calculations like reorder points can be automated. More small businesses may choose to adopt IoT tech as it becomes more affordable and widely available, including perception and smart sensor systems, wireless communication networks, and application and operations support.

Software as a Service

Cloud-based software from third-party vendors is likely to continue thriving. More small businesses will be able to afford software as a service (SaaS), keeping their financial information safer and more easily accessed. The financial overview that SaaS gives small businesses will offer greater insights into how to scale—and when to scale back.

SaaS platforms can automate and centralize many financial operations for small businesses, such as accounting, payroll, and customer relationship management. Many larger businesses use this type of fintech, but we’ll see smaller organizations adopt it more frequently to reduce costs and optimize operations.

Open-Source and Serverless Platforms

Open-source and serverless platforms are driving collaborative innovation in the fintech space. These free-to-use, decentralized platforms allow developers to access and modify the source code of financial software, fostering a community-driven ecosystem. Serverless platforms provide a scalable infrastructure where smaller businesses can develop and deploy applications without the need to manage server infrastructure. These platforms encourage collaboration, accelerate innovation, and empower small businesses to create customized fintech solutions for less investment.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending platforms are disrupting traditional lending models by connecting borrowers directly with lenders, which are often individuals rather than large corporations. These platforms match borrowers and lenders based on their specific needs, eliminating the intermediaries involved in traditional banking processes. P2P lending offers increased access to capital for small businesses and provides alternative investment opportunities.

Moving Forward

The future of fintech is rapidly approaching. AI, blockchain, IoT, cloud-based solutions, SaaS, open-source platforms, serverless architecture, and P2P lending are just some of the key technologies driving innovation in the financial industry. As small businesses embrace these technologies, they can unlock new opportunities, enhance operational efficiency, and stay competitive with their larger counterparts in the rapidly evolving fintech landscape.