You don’t have to read many recent articles to know American companies face a tough road ahead. From out-of-control inflation to supply chain woes, few industries are not taking it on the chin in 2022. Even the Silicon Valley colossi are having a hard go of it. Seemingly indefatigable Facebook is considering layoffs. Google is advising its workers to be “more entrepreneurial.”
If these economic leviathans—raking in billions monthly—are flailing, what hope do America’s small businesses have?
The news is not all bleak, however. A new wave of companies is combining the best of the financial and technology sectors into a hybrid industry called fintech. Even better, they’re enabling small businesses to not only stay alive, but also thrive.
But first, why should we care about the little guys?
Big business gets more headlines, but small businesses are the American economy’s lifeblood. As Martin Rowinski wrote for Forbes earlier this year, “No matter how small it starts—one, two, five, 10 employees—within that town, the city or the county, your small business creates new economies where once there was nothing.” Likewise, the Small Business Association (SBA) reports companies with fewer than 500 employees comprise 99.9% of all American businesses, leading to a simple question: Why do both financial institutions and tech outfits make it so hard for small businesses to succeed?
These financial difficulties are more than familiar to anyone who has ever launched a business. Banks and the like proceed at a snail’s pace, yet startups must “move fast and break things”—to borrow a phrase—if they ever hope to triumph. Compounding the problem is Big Tech’s increasingly hostile stance toward small business as it seeks new revenue streams. Example: Google now forces small businesses to pay to use its G Suite, which it once provided gratis.
In these challenging times, small businesses would do well to seek alternatives to both traditional finance companies and Big Tech machinations. The trick? Finding the right alternative. Enter alt-tech. It’s a broad term for a range of products and services springing up in innovation hubs such as Austin, Texas, as well as in basements and garages around the nation.
Building upon my discussion of alt-tech in previous articles, including the threat of financial de-platforming, how to take back photo sharing from Mark Zuckerberg, and the need to keep AI working for the good of mankind, I set out to determine how such disruptors can benefit small business owners.
The answer is clear.
Companies operating at the nexus of finance/tech, an industry known as fintech, are positioned to help America’s small businesses weather the coming storm. As it turns out, the best fintech companies operate miles away from what most Silicon Valley companies seem to care about: ingenious ways to steal our attention and exploit our data in a surveillance capitalism model.
Instead, leading fintech companies aim to decentralize key areas of finance, including digital lending, payments, blockchain, and digital wealth management. Let’s consider each of these pillars to understand how fintech can right this (sinking) American ship.
Pillar 1: Digital Lending
You’ve probably heard of Web 3.0, to be built upon innovations like the metaverse. You may not be aware of Lending 3.0, a disruption to business as usual, emphasizing online services not affiliated with traditional banks. Fintech company Marqeta recently published a report on digital lending showing Americans are more than ready for a lending revolution.
Consider these stats from Marqeta’s research: 70% of respondents believe the experience of getting a loan is a decade behind online banking. 80% think traditional lenders try to hide a loan’s true cost, and more than half say it takes too long to get money after loan approval. All these concerns matter to small business owners. Been grilled about your personal credit before getting a loan critical to your operations? Then you probably think there’s a better way.
In its future state, digital lending, powered by effective fintech platforms, could facilitate quick peer-to-peer lending with complete transparency as well as high trust and safety. Why deal with a bank when there are better capital sources with less hassle, reduced costs, and eventually, higher trust?
Pillar 2: Payments
Companies facilitating renumeration are perhaps the most familiar corner of fintech. Most people have used PayPal, Venmo, or Zelle to place an order online, pay a friend back for lunch, or send money to relatives. These companies have become so mainstream they’re no longer avant-garde. Financial behemoths, they’re able to throw their weight around, hurting both individual consumers and small businesses with their policies and restrictions.
Recent consolidations prove this point. If you aren’t aware, PayPal now owns Venmo. With two major payment companies under one roof, small businesses are at a higher risk of being de-platformed by both if they fall afoul of one of the services—a situation that often occurs via no fault of the business.
The use of multiple payment services also raises embezzlement and other misuse concerns by employees. Yet when money flow can be more effectively controlled via technology such as AI, small business owners can concentrate on running their businesses (and get more sleep at night, too).
Pillar 3: Blockchain
Blockchain may be slightly less well known than bitcoin and other cryptocurrencies. None would be possible without this underlying technology acting as a ledger for all crypto transactions. Blockchain innovators are big business—several ETFs focus solely on blockchain developers. But if blockchain is powering billion-dollar enterprises, what can small businesses gain from it? The answer is a universe of new customers, suppliers, and access to capital not found in the traditional financial system.
One simple way small businesses can benefit from blockchain is the acceptance of cryptocurrencies as payment. When your company can receive bitcoin and other cryptos, it’s a sign you’re part of the blockchain revolution—a message younger customers are particularly interested in.
Also, small businesses can gain from smart contracts existing on the blockchain ledger as self-verifying and self-enforcing agreements. Such innovation provides small business with a level of protection typically reserved for large organizations with massive budgets. Last, the blockchain is fast becoming a major funding and capital source for tomorrow’s companies interested in scaling instead of impressing a bank manager.
Pillar 4: Digital Wealth Management
Perhaps the highest-tech pillar of fintech, digital wealth management combines the use of AI, big data, and risk management to provide financial and investment services to a wide array of customers, including small businesses. Continuing a theme often repeated in fintech, digital wealth management is about providing tools, analytics, and deep insights to small business previously reserved for the big boys. (A company with 30 employees may not have the resources to hire a financial analyst, but they absolutely have resources to use software to alleviate financial management burdens.)
From the small business perspective, the sky is the limit here. Digital wealth management provides owners the ability to manage multiple payment processes, like providing a warning if a company’s bitcoin wallet holds a large balance, and the risk of loss is (daily) increasing.
Such systems may also help owners make better choices when selecting equipment and other supplies by providing information about depreciation and total cost of ownership. It’s also likely that digital wealth management systems can become the chief financial officer a small business could never hope to afford.
How to Unite the Fintech Pillars
All four fintech areas may be enticing to small businesses, but most current offers on the market remain fragmented. In fact, today’s situation evokes streaming TV services, whereby myriad companies offer their specific platform for consumers, who use it to cobble together entertainment options.
Just as such content overabundance stresses consumers, most small business owners don’t have the time or interest to compile an effective fintech package from multiple vendors. Instead, businesses need one vendor that can help them explore all fintech’s largesse. One such company stands out as doing just this: an emerging startup from Irvine, Calif., named Finfare.
I sat down with Finfare’s CEO Wayne Lin to learn more about his company’s approach to fintech for small business. Immediately, I was struck by how small businesses aren’t an afterthought to Lin—they are his focus. He explains, “Our vision is to improve and simplify the way small businesses raise, spend, and manage money. Our platform is as intuitive and user-friendly as possible so that entrepreneurs with little to no background in finance and accounting can still benefit from our array of functions with minimal training.”
Finfare’s approach is to combine services from best-in-class partners such as Marqeta, Plaid, and Alloy with the team’s in-house expertise in AI to present small businesses with a single package covering practically every fintech (and traditional finance) need.
Here’s a practical example. One of the company’s initial offerings is the Finfare Executive Card, a bank-issued credit card with advanced digital safeguards such as limiting spending to a specific geographic area, constraining purchases by type, and controlling online purchases. Finfare’s companion app also can capture receipt information and even automatically sort by category. “It’s like bookkeeper you keep in your wallet,” explains Lin.
Employing AI to not only regulate outside spending, but also automatically track, categorize, and account for external purchases, it’s possible to reduce these necessary but time-draining activities—a boon for small businesses and their owners. As Lin explains, “I’m a proponent of Michael Gerber’s E-Myth approach to entrepreneurship. Entrepreneurs should be able to work on their business, not in their business. Every minute we save owners from expenses and back-office paperwork is critical time they can use to make more connections, win clients, and build the best business possible.”
Empowering small business owners to flourish with this kind of alt-tech approach couldn’t be more vital in these difficult times, an era of unrivaled uncertainty and fear. The truth is this demographic couldn’t be more important to our economy and really, our way of life. Intrepid entrepreneurs don’t just create unprecedented jobs and sometimes, unprecedented industries, they enable the middle class to exist in this country, serving as the bedrock of our republic.
If we hope to keep the American experiment in democracy going well into the 21st century and far beyond, we must support the small businesses constituting our societal backbone. Lin sees this truth as not just central to his company’s value proposition, but also its raison d’être. “We don’t want a handful of vast conglomerates at the top of our nation and 95% of the population with no social mobility,” he says. “That kind of a vast imbalance is a recipe for disaster. Instead, it’s my hope that fintech innovations serve as the great equalizer, enabling small business owners to (re)grow our economy, leading to better lives for all.”
A stirring vision, one that can’t unfold soon enough in these hard times.