How is fintech impacting small businesses?

1 March 2021  |   8 minutes read

How is fintech impacting small businesses?

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The major banks have traditionally focused their attention on medium to large organisations, as this is usually where the most significant profits can be found.

Small businesses have found it challenging to be heard and acknowledged by the financial sector, resulting in many of them ceasing trading altogether. In fact, according to information published by the Enterprise Research Centre, almost half of the UK businesses starting up in 2013 had gone out of business within just three years.

Small businesses in the UK account for around 60% of employment in the private sector and represent over 50% of turnover. So it’s hardly surprising that the rapid growth in fintech is now firmly targeting small businesses, creating products and services to help them flourish and grow.

What is fintech?

Fintech is an amalgamation of the words ‘financial’ and ‘technology’. When it first appeared, it was exclusively concerned with automating processes for the major banking corporations, helping them to handle the enormous volumes of data created through daily transactions.

But as technological advancements have progressed, the terminology has extended into a far broader spectrum of financial applications. Today, fintech encompasses a variety of technologies that can change how businesses interactwith both their customers and their employees.

The aim is to enable small businesses to work harder, smarter and more efficiently, generating increased profits while also streamlining business processes.

The Pic n’ Mix approach

Large organisations can afford to purchase expensive financial software programs, which require additional hardware and an IT department of expensive professionals with the knowledge and skills required to maintain them in optimum condition. Updates and upgrades require extensive installation and configuration, potentially leaving smaller businesses or startups at a distinct disadvantage.

But thanks to cloud-based software packages, more widely known as Software as a Service, or SaaS, even the smallest of businesses can now purchase licenses to use the software programs they need. Rather than having to spend vast amounts of money on software packed with unnecessary features, they can pick and choose to create a package that suits their needs, and usually at an affordable price.

Today’s small companies can tailor their package when it comes to selecting their software. Customer payments, cash flow management and employee expenses can all be covered with a range of technology products that streamline work processes and dispense with the need for dedicated IT personnel.

Making light work of arduous administrative tasks

As any beleaguered company accounts department is only too aware, keeping track of company expenditure can be an absolute nightmare. Receipts get lost or mislaid, employees can’t remember what they spent, or when, and any gaps in accounting need to be fixed, often requiring extensive and time-consuming research.

Meanwhile, trying to work out VAT is something that doesn’t come easily to most small business owners, while keeping abreast of the ever more stringent laws governing data protection leave many of them mystified. Yet failure to comply with current legislation can result in hefty penalties, including crippling fines which could lead to a small business to fail.

The vast majority of small businesses have been created by people who are passionate about the products or services they provide. Business owners have developed their business as a way of sharing that passion with a broader audience and in the hopes of making a decent living from it.

When a small business owner is setting up their business, there are a multitude of concerns that will cross their mind, including complex tax regimes or how to take control of company expenses.

Fintech products have been created specifically to address these issues. Automated systems do all the hard work for you, so there’s no need to employ highly trained (and expensive) IT personnel and tax experts.

Business owners can carry on doing the work they know and love, secure in the knowledge that their fintech applications are taking care of much of the underlying complexity inherent in financial management.

Keeping a tight control on company expenses

Company expenses are one area which can very easily cause stress in a small business. Issuing employees with company credit or debit cards leaves the business bank accounts open to misuse and fraudulent transactions.

And although all of the major banks offer online banking options as standard, transactions aren’t always available in real-time. What this means for businesses is that purchases may not show up until it’s too late, by which time your business account could have been severely compromised.

Today’s fintech solutions provide a smarter option for businesses, such as Soldo’s expense management solution. With Soldo, business owners can issue employees with prepaid cards with clearly defined spending limits, meaning staff won’t be able to spend more than they should.

With customisable rules that can be configured for each card and employee, small business owners can take proactive steps to ensure that company funds remain secure at all times.

The major banking institutions that have traditionally dominated the financial sector are now seeing a genuine challenge to their monopoly with many fintech companies now grasping opportunities that small businesses represent.

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