The rapid growth of FinTech companies has received a great deal of attention. FinTechs are a set of technology companies providing alternatives to traditional banking services, most often exclusively in an online environment.
The rise of FinTech platforms is changing the provision of financial services worldwide. But as the FinTech industry continues to grow, new technologies, including distributed ledger technology, cloud computing, and artificial intelligence, have started to enable faster, more convenient, and most cost-effective financial services.
As a person who keenly follows financial technology trends, I know all too well how the FinTech industry has evolved over the last few years. Many FinTech pioneers recognised that innovation is desperately needed. When you place yourself in the shoes of a small business owner, you are better equipped to empathize with their situation and create solutions, and this is exactly what FinTech companies are doing, paving the way for SMEs to have access to better financial services.
For instance, access to credit, well all know that small and medium-sized enterprises (SMEs) play a vital role as a driving force in Uganda, they are an important source of jobs, growth, and innovation. But it’s no secret that financing is crucial for small business growth, yet SMEs routinely report difficulty in accessing credit.
SMEs are now turning to FinTech platforms for quicker access to credit because FinTech platforms have quicker processing times and less burdensome underwriting.
When it comes to borrowing, having more flexible options available to certain businesses, especially small businesses can mean the difference between success and failure. FinTech platforms have the potential to expand the role of invoice financing also known as factoring for SMEs. Factoring is one of the oldest forms of lending. Factoring is particularly attractive to smaller firms that might otherwise lack collateral to obtain loans or face other liquidity constraints.
These firms can rely on the creditworthiness of larger customers to facilitate borrowing for investment or, more typically, working capital. Factoring also enables SMEs to make up for their limited expertise and bargaining power when collecting late payments from big customers by outsourcing these activities to a third party.
FinTechs provide digital payments and these provide significant benefits to SMEs since they can lower transaction and delivery costs for merchants.
Advances in technology such as mobile phone/internet, contactless solutions such as QR codes, big data analytics, APIs and biometric technologies are impacting the evolution of digital payments. These innovations have led to the development of new delivery channels and payment methods, which significantly simplify the payment process, help in customer onboarding, and improve the precision of real-time approvals.
Needless to say, all businesses should be able to properly manage their accounts to establish credibility and transparency. Optimal operations cannot be expected if invoices are not promptly delivered. As more small businesses put their faith in FinTech, they get to explore various methods to conveniently manage their accounts with real-time financial monitoring that ensures everything is in order. This gives business owners peace of mind. Once this is in place, business owners can focus on other aspects to make the small businesses thrive at the most beneficial pacing.
Also, the emergence of new technologies has enabled non bank entities to provide financial services to parts of society that are underserved. These entities hold the potential to address barriers that SMEs face. But, that said, SMEs need to improve their financial literacy to take the most advantage of the financial opportunities made possible by FinTechs since they are here to stay.
Hassan Kitenda is an Investment Analyst.