Advanced financial technology – commonly shortened to fintech – has changed the way businesses interact with their customers and their finances. With rapid innovations in the fintech space, adoption of these technologies has skyrocketed – rising from 16% of businesses and consumers in 2015 to 64% in 2019.
While the growth of financial technology thus far has been impressive, the fintech revolution is far from over. Fintech companies continue to develop solutions to meet the needs of businesses and these innovations have yielded overwhelmingly positive results for firms that implement them. In fact, 78% of small and medium-sized businesses said that adopting digital tools created new opportunities for their companies. To better understand how fintech is driving these changes, consider these 6 common ways fintech is helping businesses succeed.
1. Banking as a Service Helps Businesses Expand their Product Offerings
Banking as a Service [BaaS] is a subsection of fintech that allows businesses to offer banking services – like credit and debit cards, bank accounts, and insurance – without registering as a bank. Businesses that offer these products can attract new customers, retain existing clients, and gain a competitive edge in their market.
For example, a company that sells a high-cost product could offer in-house financing using a BaaS provider. The loan application and servicing could be integrated into the company’s website, making it appear that the financing was provided by the company rather than a third party. Each time customers needed to submit a payment, they would return to the company’s website to do so, encouraging them to make additional purchases.
In addition, many banking services like credit and debit cards can provide data about customer behavior outside of their interactions with a business. This data can help companies understand their target audience, improve marketing, and spur innovation.
2. Fintech Powered Payment Services Simplify Transactions
A category of fintech called ‘PayTech’ makes up about 25% of the overall fintech market. These technologies vary widely by provider and often seek to make transactions more efficient and secure. With more efficient transactions, businesses can reduce the lag between a purchase and receiving the payment – making accounting easier and giving a business an extended timeframe to invest their funds.
In addition to efficiency, the added transactional security offered by PayTech companies can help businesses avoid costly data breaches and fraud while increasing customer trust. Some PayTechs also provide customer behavior data to their clients beyond what they could get from their own sales information. This data can be valuable for product targeting and improving innovation.
3. Fintech Lenders Help Businesses Secure Loans
Securing a business loan has always been a challenging process, and the way business credit scores are determined has contributed to these difficulties. However, non-bank lenders – a.k.a. fintech lenders – have recently developed new ways of determining creditworthiness outside of traditional credit reports. These methods have proven effective, both in predicting delinquencies and in approving loans to businesses that otherwise would not have been approved.
With a fintech lender, some companies stand a better chance of having their loan approved when compared to traditional lenders. In addition, the alternative creditworthiness calculations can reduce the cost of credit for some businesses. These factors make fintech lenders a valuable choice for many organizations.
4. Fintech Powered Escrow Services Help Businesses Reduce Risk
Business escrow services protect buyers and sellers in large, complex, and lengthy transactions. Due to the scale of projects that typically require escrow – buying or selling a business, placing a large order, and buying or selling intellectual property – ensuring that escrow funds are protected from bank failure has historically been a challenge. Fintech has presented a solution to this problem.
With fintech powered business escrow, all escrow funds can be secured by the ultimate protection – FDIC / NCUA insurance. As an added benefit, businesses can earn a nationally competitive return on their escrow funds.
5. Fintech Helps Businesses Avoid Fraud and Reduce Cybersecurity Risk
Data security has been a significant concern for businesses over the past two decades. Major data breaches have left consumer data exposed and damaged the reputations of victimized businesses. With the significant threat posed by cybersecurity failures, it is unsurprising that businesses have invested heavily in fintech to counter these risks. Between 2020 and 2021, investment more than doubled in fintech aimed at improving security of sensitive data.
In addition to improving cybersecurity, fintech can also help businesses identify potential fraud. Many of these technologies use AI, machine learning, and robotics to detect and respond to potential fraud. Businesses that implement this type of fintech can reduce risk and protect their reputation.
6. Fintech Powered Deposit Management Helps Businesses Secure Protection and Returns for Cash Reserves
Fintech has also revolutionized deposit management – the process by which businesses manage their cash reserves. One of the main advantages of keeping cash in a bank account is government insurance through the FDIC. However, FDIC insurance is capped at $250k per ownership category at each insured financial institution and business cash reserves often vastly exceed this limit.
Fintech offers a simple solution to overcoming FDIC limits. With fintech, businesses can achieve full government protection for all their cash. In addition to extended protection, this technology provides access to nationally competitive interest rates.
How ADM Uses Fintech to Help Businesses Earn More, Risk Less®
At the American Deposit Management Co. [ADM], fintech is at the heart of everything we do. We leverage proprietary fintech to spread large amounts of business cash across our robust network of financial institutions that compete for deposits, thus providing a more competitive return. This technology powers our American Money Market Account™ [AMMA™] and our business escrow services.
AMMA™ provides access to extended government protection for business cash reserves along with nationally competitive returns, and next-day liquidity – with one account and one consolidated monthly statement. Additionally, our business escrow services help firms reduce transactional risk while ensuring escrow funds are safe and earning a competitive return. To explore all the ways ADM’s fintech helps businesses, contact us today.