With the Christmas season well and truly upon us, it has never been more important for online businesses to have a robust financial system in place. This is the busiest time of the year for online retailers, and without having a steel-strong economic footing, your profits could end up being a lump of coal on the 25th of December.
Let the holidays work for you.
Thankfully there are multiple solutions available to provide online businesses with the financial fortitude they need to not only survive the Christmas rush, but thrive. Technology and finance (also known as fintech) have joined together to support retailers by making the financial side of online selling less arduous, be it in access to capital, the speed of transactions, or simply by making it easier for consumers to purchase goods. Investors responded to fintech in a big way, putting $36 billion globally in the Christmas stockings of fintech companies in 2016. The marriage between finance and tech takes some of the hassle out of what were once pain points in the road to a company’s strong financial foundation.
If you’re an online retailer, you may just find yourself putting fintech at the top of your wish list this Christmas season! Read on to find out why these digital solutions are better than any partridge in a pear tree.
What is fintech?
As with most burgeoning buzzwords, an exact definition of fintech is still being ironed out. Business.com says that fintech “could be described as the techpreneur countercultural movement to upend traditional banking and lending’s heavy regulation and strong resistance to change in order to make sending and receiving money easier.” Although that is quite a wordy definition, there is a good point at the heart of it: fintech is attempting to make the financial world easier to use.
However, you’ll be hard pressed to find a bank or financial institution that is leading this charge. Instead, fintech companies come at it from the other side: they tend to be technology companies that specialize in finance, rather than the other way around. For example, consider your personal bank. Would you consider them pioneers huge technological advancements that allow you access to money faster? Not likely. Just like Santa keeps track of his elves at his North Pole workshop, the banks keep a close eye on every penny they hold. Banks are businesses, and it is in their best interest to keep as much money under their control as possible.
Tech companies, on the other hand, have a different aim. Yes, at the end of the day they’re ultimately interested in earning a profit – it’s safe to say most businesses are – but tech companies’ ethos tends to center around making things easier, faster, or smarter. That’s why they’ve begun to sink their teeth into the finance world, an industry rife with regulation, rules, and red tape. To a tech company, this sort of an industry has “DISRUPT NOW” scrawled all over it as bright as Rudolph’s red nose.
Small business lending
The Federal Reserve’s Small Business Credit Survey tells us that 60% of small business loan applicants ended up with less money than they applied for in 2016. In fact, “credit availability or securing funds for expansion” was the top challenge for small businesses, affecting 44% of respondents, and 76% of them used personal funds to cope with financial challenges. To put it plainly, small businesses have a difficult time getting money – even when the spirit of giving is at its peak at Christmastime.
Fintech companies make small business lending easier, and there is a handful of different options available. For example, J.P. Morgan Chase partnered with On Deck Capital in 2015 to provide their solution: Chase Business Quick Capital. This allows Chase customers to obtain a loan faster, depositing funds into the applicant’s account on the same day as the loan is approved. It’s this kind of fast-moving action that can make a huge difference to a small business.
Another fintech advance is being pioneered by UK startup MarketInvoice. This company started with peer-to-peer invoice financing, and has recently expanded into short-term loans between £10,000 and £100,000 ($13,314 to $133,138). The funds are distributed in as little as two days after the loan application is submitted, meaning fast financing for companies who need the money quickly.
Large financial institutions are starting to feel the pressure from fintech companies: PwC’s recent report Redrawing the Lines: Fintech’s Growing Influence on Financial Services was a survey of over 1,300 senior financial services and fintech executives from 71 different countries. The report stated: “FinTech is a driver of disruption in the market. Financial institutions are increasingly likely to lose revenue to innovators, with 88% believing this already is occurring.” These large banks and finance companies recognize that fintech is far more than just a flash in the pan, and that they need to embrace technology in order to survive amongst fintech startups – else they may find themselves singing I’m Gettin’ Nuttin’ for Christmas.
These innovative solutions provide Kris Kringle-worthy capital to companies that depend on funding to survive. As we said before, Christmas is the busiest time of year for many online businesses, and securing finance could be just the gift that allows these businesses to stay afloat through this hectic period.
Perhaps an even more popular word than fintech is cryptocurrency, which comes under the umbrella of blockchain. We recently wrote about whether online businesses should start accepting bitcoin; there’s no doubt that with just a few of these digital currency units you could easily fill Santa’s sleigh. To date, cryptocurrency is one of the most valuable and highly debated topics in the fintech world. PwC’s aforementioned report states 77% of survey respondents expect to adopt blockchain as part of an in production system or process by 2020.
Bitcoin and other cryptocurrencies have somewhat similar aims to fintech startups: they want to remove some of the power from banks and financial institutions. Started in 2008 by anonymous inventor Satoshi Nakamoto, the idea behind cryptocurrency is that no single institution or country controls how it is used, decentralizing the currency entirely. Furthermore, all transactions are available on a public ledger, meaning transparency is paramount at all times.
The most well-known type of cryptocurrency is bitcoin. The value of bitcoin has varied dramatically in its short life, but at the time of writing 1 bitcoin is worth more than $11,000. (To check the value of bitcoin right now, click here.) Another well-known player in cryptocurrency is ethereum, which started in 2015 and currently stands at $479 per unit. While these two types of cryptocurrency have slightly different technology behind them, and some argue ethereum’s technology is more advanced than bitcoin’s, they both operate on the same principles of decentralization and transparency – a bit like Santa always being fair when writing his Naughty and Nice List.
Cryptocurrency is perhaps one of the most innovative advances in the fintech space, since there has been nothing like it before. It is truly a game changer, the result of someone wanting to cause disruption with a capital D. Additional cryptocurrencies have begun to enter the fintech world as well, reflecting public support for its values. But don’t expect any cryptocurrency to end up in your stocking – this currency is 100% digital, which means that no physical notes or coins exist.
Online payment systems
This is an area that has exploded with excellent solutions in recent years, and it makes sense: last month, online shoppers shattered the 2016 Black Friday record by spending $5 billion on November 24th – that’s a 16.6% increase from last year. It’s clear that digital shopping is the new norm when it comes to modern shopping – even if a significant portion of those online sales were addressed to the North Pole.
We recently wrote in depth about online payment systems, so we won’t go into too much detail here. Two of the top choices are PayPal and Stripe. PayPal is one of the oldest and most well-known online payment systems, and it offers online retailers options for both credit card transactions as well as withdrawals from a bank account. However, the fees can get a bit high, so you may need to wait until after the holidays before taking the plunge and ponying up.
If you’re handy with a bit of code and/or have a reliable dev team, you may want to give Stripe a try. It’s the hip new player on the scene and is an excellent choice in terms of online payment systems for small businesses. Swipe also have a range of physical swipe/contactless card solutions if you ever want to try your hand at real-life retail. Stripe is Apple’s official partner for mobile payments via Apple Pay, which gives a lot of credit to this up-and-comer.
The period of time between Black Friday and Christmas is undoubtedly a gold mine for many online retailers, and in order to take full advantage there is a range of fintech solutions to suit almost any small business. Fintech could mean the difference between, “Ho, ho, ho” and “No, no, no!” to an online retailer, so get your business on the Nice List and enjoy the financial security and wealth of opportunities made available to you by fintech.