In my mind, fintech is a simple blend of finance and technology, but its impact is much more significant. The wave of innovation unleashed by the internet and propelled by mobile has disrupted many industries: newspapers, TV, hotels, taxis, postal services and even radio DJs have had to adapt or fail in the face of asymmetric competition from a new breed of tech-savvy rivals. Think of the impact Spotify has had on downloaded music content or what Airbnb and Uber have done to the travel industry.
But retailers were among the first to feel these winds of change. Consumers quickly embraced online shopping, and today it is hard to imagine the days when every purchase meant a trip to the mall or main street. Retail incumbents have evolved into omnichannel businesses that seek to satisfy consumer demand wherever they find it — online or in-store.
But lately it feels like financial services are the latest target for this digital disruption. A wave of innovative technology players has emerged offering financial products and services to consumers that promise better value, more convenience, greater transparency and enhanced user experiences. Traditional banks are scrambling to catch up, but legacy technology and cultural inertia mean that few can deliver the fast, safe and simple experiences that consumers now expect. As a result, the fintech sector is booming.
But lately it feels like financial services are the latest target for this digital disruption.
Leveling the field
While large retailers can use their negotiating strength and in-house technical capabilities to bring convenient financing products to their customers, this ability to oil the wheels of a sale has often eluded smaller businesses. Unable to offer low interest rates with quick sign-up, many lose out to bigger rivals that are able to provide easier or more competitive financing. Adding to this is downward pressure on ticket sizes, smaller players tend to concentrate on product ranges where financing is less of an issue.
And financing is a key part of the business model for many large retailers. Some bigger players advertise special deals to entice customers and generate loyalty; others use it to convince wavering shoppers to go ahead with big-ticket purchases by spreading the cost. But because of their size these benefits have not been available to SMB retailers.
Consider what is traditionally involved for any retailer wanting to offer credit to its customers:
- A deal would need to be negotiated with a credit lender. This might just be possible at the larger end of the SMB scale, but most would find that lenders are focused on relationships with large retailers.
- Even if financing could be arranged, the next challenge would be setting up the business to handle it. First there would be point-of-sale technology integration, which is likely beyond the capabilities and resources of most SMB retailers.
- Next comes the administrative task of handling financial documentation, which is subject to complex compliance requirements.
- Then comes the challenge of training staff to sell and process financial applications, specialist skills that are in short supply outside large firms.
Given the commercial, technical and human resourcing challenges, it's little wonder that financing has made such a small impact among SMB retailers.
The benefit of credit
Forrester Consulting, an arm of the respected analyst group, conducted a study into the impact of retail financing on behalf of PayPal. They discovered a 15-percent increase in average order value when financing was offered, as well as an 18-percent overall sales increase when 'six months to pay' banners were placed on e-commerce websites. According to a comScore survey of shoppers who recently used PayPal Credit to buy online, 30 percent spent more than originally planned after learning about a six-months-to-pay financing offer.
Now fintech is leveling the playing field in finance, and smaller retailers can start to out-compete the retail giants.
As fintech innovation challenges the apathy of traditional banks smaller retailers that have survived through digital disruption and against larger rivals are now beginning to find themselves in a stronger position. Competition has meant that many have already done the hard work to become leaner, more distinctive and able to deliver a higher level of service.
Now fintech is leveling the playing field in finance, and smaller retailers can start to out-compete the retail giants. A level playing field means instant financing at the point of sale that leverages the retailer's existing infrastructure and the consumer’s mobile technology.
After years of being buffeted by digital disruption, for SMB retailers, the fintech revolution is one to be welcomed.