While the digitization of financial services has made significant strides at granting greater financial inclusivity to end consumers, there is much work to be done to extend these services to businesses. Fintechs are currently working to develop services and platforms centered around unmet business needs but fragmentation and an uneven regulatory framework pose significant challenges, according to industry experts.
“We are seeing a digital and mindset transformation in which clients are at the center of everything. We are listening to client’s challenges and necessities,” said Paulina Aguilar Vela, Co-Founder and Country Director, Mundi.
Traditional banking institutions have neglected to invest in the development of B2B finance services, specifically those pertaining to international commerce, leaving small businesses with no recourse other than outdated traditional models, said Aguilar. This often led SMEs to act as banks for their large suppliers, which restricts their financial liquidity and wellness. Financial factoring has allowed SMEs to participate in international exports without having to use their capital to finance their providers and clients, said Aguilar. Solutions such as these have been created from listening to the needs of businesses, while using technology to facilitate and expedite these processes.
The COVID-19 pandemic accelerated many of the projects that fintech companies were working on prior to the pandemic. Digitalization is helping address consumer demands in various and more efficient ways. However, the processes that have made these competencies possible remain different from those between banks, and remain very fragmented, said Armando Herrera Reyna, General Manager, Konfio. This represents a significant area of opportunity and growth that is still in the early stages of development. These services should be built on existing infrastructure so fintech companies can focus on evolving solutions instead of reinventing the wheel, he added.
Fintech companies should aim to address the root causes of financial problems, not the symptoms, said Herrera. For example, companies begin to look for financing options after they missed some payments from their clients, which ultimately reduces their liquidity and forces them to seek credit. The objective is not to treat the symptom, which in this case is credit, but to create services that circumvent these occurrences in the first place and at the direct benefit of the business clients. An added aspect of this challenge concerns identifying what are the primary issues businesses face and who are the respective stakeholders and decision makers.
“Companies with a culture based on constant innovation will gain a predominant position in the market,” said Vela.
Another important challenge is the regulatory framework, which needs to move faster because tech is advancing faster than regulation can keep up with, said Guillermo Naranjo, Director of Financial Services Applications, Oracle. There is a lot of discussion regarding data, storage and services, which is hurting the continued advancement of this sector. These challenges concern both backend-as-a-Service (BaaS) and open banking, which need matching international regulations to function and prevent fraud and money laundering. This will ultimately require fintechs, traditional banks and federal governments to work in partnership to fast track legislation. Partnerships will be fundamental to the accelerated fruition of this emerging sector considering that there are numerous and weighted developments occurring in parallel to one another.
“Regulation is a controversial topic that has delayed progress. Nevertheless, it is important to understand how data is used. Regulation has to go faster than technology,” said Naranjo.
Another aspect of this partnership should concern platform-to-platform communication so that they can work in conjunction, misconfigurations in cloud services caused by APIs that do not match leave spaces for unauthorized entry. Fintech companies that circumvent this problem can benefit from greater security.
Overall, there are significant opportunities in this emerging market, which stands to benefit from greater cooperation and partnerships among fintechs and traditional banking institutions.