Small and medium-sized enterprises (SME) represent approximately 95% of the business fabric. Their importance in the recovery of the same is unquestionable, but they do not always have the necessary resources or support. In this context, FinTech firms constitute fundamental support for its success. For a prompt economic recovery, SMEs and FinTech must go hand in hand. Randall Castillo Ortega, the founder of SME investor RACO Investment and a FinTech expert, provides insight into why FinTech entities make the best partners for SMEs.
Financing, payment management, partnerships and RegTech (regulatory technology) constitute the four pillars on which small and medium-sized companies can meet their survival objectives in the market. Asserts Castillo, “Not all SMEs have had easy access to financing from traditional entities. Companies in the FinTech environment dedicated to alternative financing have given a respite to small and medium-sized companies in this regard.”
Thanks to crowdfunding and crowdlending platforms, smaller businesses find financial support from private investors. They provide investment alternatives in an agile and totally digital way. In the case of crowdlending, the return of the invested capital is offered in addition to an interest. But there are other formulas, such as equity crowdfunding, where you invest in a company in exchange for a stake in its share capital or revenue-based finance, a model that proposes a friendlier financing alternative. They receive an advance that they return with a percentage of the income they generate.
Many companies in the FinTech network offer innovative solutions in terms of payment management: cryptocurrencies, loans, electronic payments, personal or investment financial control. These are new business models that take advantage of technology to respond to new forms of consumption and from which small and medium-sized companies benefit greatly. “To survive, SMEs must evolve at the speed that the market does and thanks to FinTech, they can do it in an agile, simple and comfortable way,” asserts Castillo.
The creation of new products and services and the use of technology to enhance processes such as banking are key to facilitating the management and development of SMEs. Fintech companies bring to them the technological innovation necessary to reduce their costs and offer better service to their customers.
According to some studies, to be able to register through a non-face-to-face identification process, the only thing the client needs is to have access to the Internet, a computer or mobile device with a webcam and their identity document in force. But what are the technological components that enable this method of non-face-to-face identification of customers? Facial biometrics, document recognition and automatic verification, identity management platforms and many other technologies are behind these innovation advances that in many cases have been driven by FinTech
In the RegTech concept, technology-based companies are grouped whose purpose is for certain businesses to improve their internal processes to comply with the regulatory framework. Thanks to big data or cloud computing, RegTech helps SMEs reduce costs and efforts and allows them to adapt in an agile way to any type of regulatory change.
The climate of understanding and search for synergies between traditional banking and FinTech even reaches the world of crowdlending. In fact, many banks use these platforms to co-invest with individuals when financing loans to SMEs. In some markets, these are private or investment banking entities, but in markets such as the US and the UK, even commercial banks join the pool of investors. In the end, the company’s goal is to find the best way to make its liabilities profitable and that may not always be through banks. Relying on FinTech solutions and private lenders provides a solution that is going to be proactive in supporting the business.