Small Business Fintech is levelling the cost of capital playing field

Today, Jessica is taking a break. This post is by Bernard Lunn, CEO of Daily Fintech and author of The Blockchain Economy

We saw the potential in the Small Business Fintech megatrend, which we described as “big enough to drive a truck through” back in 2015 and Jessica Ellerm started our regular weekly column 4 years ago in February 2016 (when it was seen as a niche within a niche).

By 2020, Small Business Fintech has become mainstream and is scaling fast. Today we reflect on the growth of this market. 

When Daily Fintech was born 5 years ago in the summer of 2014, Fintech was a niche. Based on our analysis of the direction and force of this wind of change, we created a platform for Fintech content in 5 market segments corresponding to 5 days of the week. Wednesday has been our day to focus on Small Business Fintech.

Now that Small Business Fintech has attained mainstream status (as seen by all the financings, partnerships, exits and market traction that we report on regularly) it is time to look at 6 niche markets within Small Business Fintech.

  • Credit Scoring. Efficient loan processing through analytics, AI etc is key to Small Business Fintech.  It is easy to lend quickly, but much harder to lend quickly AND profitably.
  • Digital trade finance. This has lots of ventures some them quite mature, but is not as high profile as the first segment. These go via various names such as Supply Chain Finance, Payables Finance, Receivables Finance. These offer lower APR for companies that have invoices from customers who pay reliably (or have a good credit rating).
  • Asset based lending. This is not as mature and still ripe for innovation. It is complex because you also have to fix the currently messy business of asset recovery post default.
  • Innovation Capital for millions of entrepreneurs. The market tends to equate Innovation Capital with equity for Baby Unicorns aka Venture Capital. The much bigger and currently overlooked market is patient capital for Butchers, Bakers & Candlestick Makers ie for main street businesses.
  • Smart contract tokenised payment processing. Our thesis is that the stranglehold of the Credit Card networks will first be broken in Small Business and replaced by some form of innovation that uses smart contract tokenised payment processing using stablecoins. This is still very early stage. 

All these changes are levelling the playing field with big business corporates over the cost of capital. For years, big business corporates got capital very cheaply and quickly while  small business struggled with clunky processes, high rates and lots of personal risk. The second order implications of this levelling of the playing field are profound.

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