Fintech: Balancing Speed and Availability with Service and Privacy
Fintech is becoming increasingly popular each year. The success of Fintech is primarily driven by the ease and speed of getting access to funding. However, oftentimes as Fintech companies work tirelessly to improve their funding process to make it faster and more seamless, they are doing so at the expense of offering you quality customer service while at the same time invading your privacy. Part of the reason for this disconnect comes simply from the size of these businesses. Over half of all Fintech companies have more than 5000 clients, and a quarter of them have over 50,000 clients. There simply is no way to manage these large number of clients efficiently without making sacrifices. However, if they limit their client base, then it becomes way too expensive to support their massive IT and marketing budgets, not to mention keep their investors happy. For business owners, the solution is to find a financial partner who is small enough to offer you the personalized service you need, but large enough to offer fast, reliable service and have the funds necessary to keep your business running.
Speed
Certainly, it is the ability to get funds fast that has made Fintech so popular. The way that Fintech has been able to do this is by using AI to automate processes that traditional financial institutions rely on humans to do. By taking humans out of the equation, it allows computers to make instant decisions and get you the funding you need. This has and continues to be the main focus of most Fintech companies, with over 80% of Fintech companies actively looking for ways to automate more processes and remove humans from the equation. Unfortunately, this comes at a cost, as more people are getting replaced by machines, customer service winds up suffering, and their ability resolve problems becomes more and more limited. Privacy concerns also become an issue as the Fintech companies require access to more data in order to base their decisions on.
Availability of Funding
Fintech companies also benefit due to the fact that getting a loan or line of credit from a bank has always been a challenge for many small businesses. Banks make credit decisions by looking at the business’s credit as well as the personal credit of its owners. Oftentimes for a young and growing business, establishing good credit can be a very big problem. As a company begins to grow, so does their expenses, and when a company suffers from poor cash flow, funds aren’t always available to pay bills in a timely fashion. For the owners of these businesses, frequently they will have invested much of their own money into the business, so their personal credit also takes a hit. The result is that banks are typically unwilling to fund them. Fintech companies get around this problem in several ways. First, they look at assets that banks may not have easy access to. By integrating with QuickBooks and other financial software, Fintech companies have real time access to all of their client’s receivables as well as a history of how the receivables have been paid in the past. More importantly they participate in predatory lending techniques such as excessively high interest rates and daily debits from the business’s checking accounts. By taking funds directly out of a bank account on a daily basis, it guarantees that they will get paid before anyone else, not to mention since they have access to the account, they know exactly how much money has been going in and out of the account and what the current balance is. The high interest rates also allow them to accept a higher rate of default since they make a very large amount of money on clients who don’t go into default.
Customer Service and Communications
The ability to easily communicate with your financial partner is perhaps the most crucial. Whether you have a simple question you are looking for an answer to, or have run into a problem that you need to come up with a solution to, you need to have a way to communicate. These days there are three main forms of communication. The two most popular forms are email and phone; however, online chatting is becoming increasingly popular and is expected to have tremendous growth in the future. The problem of course is how you integrate these three forms of communication. The last thing you want is for your client to utilize two of these forms, and have to re-explain themselves each time because there is a disconnect between the people assigned to answering each communication method. Only a little more than 10% of Fintech companies actually have a way of managing these three channels in an integrated fashion, and even so, it is unlikely that their clients would be able to deal with the same person if they change methods. To make matters worse, less than a third of Fintech companies actually have a way of providing the people speaking with their clients full access to their client’s account, especially when they’ve outsourced their communications overseas. Therefore, quality customer service is typically something that Fintech companies sacrifice in order to cut costs and take on more clients.
Privacy
Typically, when we hear about privacy concerns these days it involves major breaches, however, while breaches are certainly still a concern, in the world of Fintech there are also very different privacy concerns. In order for Fintech companies to work so efficiently at funding thousands of companies, they have learned how to take humans out of the equation, and make all credit decisions using AI. In order to this, these institutions require access to data which usually comes in the form of direct access to your bank accounts and accounting software. Fintech companies are constantly keeping track of any transactions you make and are basing their credit decisions on what they see. Many Fintech companies also make automatic withdrawals from your bank account, the very same bank account that they require you to give them access to, in order to pay them back. If you don’t feel comfortable allowing your financial partner to have complete control over your financials and the funds in your bank account, Fintech is probably not right for your business.
Alternatives to Fintech
Just as Fintech is considered an alternative form of financing, there are also alternatives to Fintech that combine its speed and availability with high quality customer service and respects your privacy. Accounts receivable factoring has long been an alternative form of financing that is fast and easy. Factoring is easy to qualify for, if your company has receivables then it can qualify for factoring. With accounts receivable factoring you are not receiving a loan, but rather selling your receivables to your factoring company, as a result, credit decisions are based on your customer’s good credit and not your own. As for speed, most factoring companies have introduced automated credit approval processes, although they also still rely on humans to review requests as well. However, so long as you submit your requests during normal business hours, factoring companies are typically able to respond to you with a decision that same day, oftentimes within half an hour to an hour. As for funding, the process may not be as automated as it is with Fintech companies, but typically your factoring company will allow you to email them invoices that you wish to get funded on, and they will be processed for payment that same day. It may not be as easy as clicking a button on a Fintech company’s phone app or in your accounting software, but by making these very small sacrifices in convenience, factoring companies make up for it with customer service and privacy.
Customer service is something that can vary between factoring companies. With large factoring companies, you typically get assigned an account manager who you will deal with all the time, as a result they should be familiar with your account, although they may need to get permission from upper management to make major decisions. With smaller factoring companies however, you oftentimes can speak with a principal each and every time you call, email, or chat with them. So, you not only get to speak with someone who is very familiar with your account, but they also have the ability to make major decisions and get you access to additional funding if needed.
In terms of privacy, some factoring companies may request financial statements from time to time, but this is not always the case. However, what is true of all factoring companies is that they will never ask for access to your bank accounts or your accounting software. The reason why factoring companies don’t require access to this information is not just because they use human decision makers, but because they are not giving you a loan. Since you are selling your receivables to your factoring company, it is ultimately your customers who are responsible for paying your factoring company back, not you.
Of course, the biggest difference between Fintech and factoring is that factoring companies don’t use predatory lending techniques. The fees charged by factoring companies are much lower than those charged by Fintech companies. While it is true that if you calculated a factoring fee as an APR it would appear to be much higher than a bank loan, this isn’t really the case. Factoring is much more than just improved cash flow, with factoring there are also two other major benefits. First, you are outsourcing your accounts receivable. That means that your factoring company will be handling all of the credit checking and collecting for you. Not only will you be able to save money by not having to subscribe to expensive credit checking agencies, but you also don’t need to hire additional employees to handle your collections, or if you handle collections yourself, you’ll be able to free up some more time to focus on marketing, sales, or other aspects of your business. The other benefit is that if your factoring company offers non-recourse factoring, that means that credit insurance is included with the factoring, you no longer need to worry about customers who are unable to pay their bills. After accounting for these additional benefits, the actual cost of factoring as an APR is actually very comparable to what a bank might offer you.
At DSA Factors we take pride in the customer service we are able to provide to our clients while also respecting their privacy. As a small, family-owned business we understand the needs of your business and can offer the same fast and reliable funding you get from the larger companies, but with a personal touch and flexibility that only a family-owned business can provide you. If you want to get started with factoring, give us a call today at 773-248-9000, and one of our principals, either Ben, Max, or Howard, will be happy to speak with you.
* Data for this article comes from the LiveVox Fintech Contact Center Survey Report for 2019.
