In less than a decade, upstart financial technology companies have convinced a generation to put their trust in technology over traditional banks.
While the fact that FinTechs approve SMB loans roughly twice as often as their bank peers surely plays a role, an under-recognized reason for FinTech firms’ growth is their focus on the customer experience. A joint Capgemini-Efma study found that 40.3 percent of global consumers have had a positive experience with a FinTech firm, compared to 37.1 percent who say the same about traditional banks.
If FinTech firms’ experiential advantage sounds small, consider how much CX matters in the financial sector. An EY report on the subject found that nearly twice as many respondents — 41 percent — said they’d switch financial services providers for a better customer experience than those who indicated they wouldn’t, at 23 percent.
Winning With CX
While banks continue to underwrite the majority of small business loans, FinTechs are shifting small businesses’ expectations, improving the customer experience by:
1. Automating real-time loan decisions through data. When a small business needs a loan, it needs a loan. A pizza shop that needs to replace a broken oven, for instance, can’t do business without a way to cook food for its customers. No wonder 45 percent of business applicants dissatisfied with their bank lending experience cited long wait times, behind only lack of transparency, when surveyed by the Federal Reserve. In contrast, just 17 percent of business applicants who weren’t satisfied with their online lending experience said long wait times were an issue.
What, exactly, do alternative lending companies do differently to decrease wait times? With a unique data approach, Kabbage fully automates the underwriting and approval process by analyzing an applicant’s real-time business data. In addition to their checking account, small businesses can connect the accounts used every day to run their business, such as payment processors, bookkeeping software, website analytics, and e-commerce platforms. With a persistent connection to its customers’ live business performance, Kabbage’s lending platform allows it to approve small businesses for lines of credit up to $250,000 in minutes.
2. Improving cash flow through invoice financing. Banks are in the business of making loans and holding money. They’re not interested in doing the dirty work of invoicing customers or collecting on outstanding accounts. The trouble is that late payments cost small- and medium-sized businesses as much as $3 trillion per year. Thankfully, some FinTech firms have decided to give SMB customers a hand.
BAMFi, for instance, increases entrepreneurs’ cash flow without forcing them to take on debt. Through its BAMwire service, BAMfi creates, sends, and collects on its customers’ invoices. Not only do BAMFi users get paid immediately, but they boost their operational efficiency by tenfold, the company’s website claims, through automated invoice processing.
3. Demystifying fee structures. Traditional banks don’t exactly have the best track record on transparency. Yet a Label Insight study showed that 94 percent of those surveyed said they’d be more loyal to transparent brands, and 73 percent said they’d be willing to pay more for a product that offers transparency. Although the study focused on consumer preferences, there’s no reason to think business buyers behave differently.
To help business leaders compare loan options, Innovative Lending Platform Association has introduced what it calls SMART Box. Short for “Straightforward Metrics Around Rate and Total Cost” Box, the pricing model shows entrepreneurs the total cost of their requested capital. ILPA’s metric incorporates not just the effective APR, but also all costs and fees the loan applicant can expect to pay.
4. Integrating with top e-commerce tools.
For more and more small businesses, brick and mortar is only half the story. A joint Insureon-Manta survey showed that more than eight in 10 of them experience “moderate” or “significant” revenue growth when they start selling their products online. Unfortunately, most traditional banks have yet to develop integrations with common e-commerce tools.
Stripe, an online payment processor, has clearly made integrations its competitive advantage. Those who already have a Stripe account can hook it to shipping providers like EasyPost, accounting services like Silver Siphon, and dispute management platforms like Chargehound. To accommodate a diverse range of online business models, Stripe also works with fundraising platforms like RaiseNow, ticketing tools like Diobox, and e-commerce platforms like Webflow.
While banks have established brands and trust with customers, they’ve underserved small businesses in need of working capital; FinTech services have helped fill the gap. FinTechs have put their focus on the customer experience, and with that, they just might have won over young entrepreneurs for good.