Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 188

Fintech platforms disrupting business finance

The term 'fintech' covers a wide and ever-growing range of technologies. This article explores some of the biggest game-changers, and how they’re impacting the way businesses are managing their financial affairs.

Treasurer Scott Morrison said of fintech in 2016:

“It has the power to completely bring in a new environment of competition. For small businesses out there who find it difficult to attract capital, for large government agencies who are struggling with convoluted and difficult payment systems … to medium-sized businesses that are trying to bring their products up to date and to connect with their consumers in ways they haven’t before."

Then on his visit to a G20 Conference on digitising finance and financial inclusion in Germany on 27 January 2017, he was even more effusive in showing his passion for fintech:

"Fintech is the way of the future. There is, without doubt, a paradigm shift taking place. But while we cannot go backwards, the success of fintech is not guaranteed. It is important that all of us work together, across borders, to help build this industry so that it can deliver for consumers, for businesses and for our respective economies. That is what this moment, this opportunity, demands of us."

The advantages of digital wallets

Payment systems such as PayPal, and digital ‘cryptocurrencies’ like Bitcoin, enable anyone to do business without involving a bank, cutting out the fees, delays, and restrictions imposed by traditional financial institutions, and enabling truly global commerce.

Digital payments stimulate sales because they make it fast and convenient for consumers to purchase goods or services, which is why many businesses across every sector now accept them as an alternative to credit card payments and direct bank deposits.

One of the greatest advantages to digital payments is that they facilitate one-tap, on-the-go transactions via mobile device, enabling businesses to capture prospects at the moment of impulse and immediately convert them to customers. With 79% of Australians now owning a smartphone (and collectively looking at them 440 million times a day), mobile commerce is a channel no modern business can afford to ignore.

Blockchain is going mainstream

Blockchain is a database or ‘public ledger’ originally developed by Bitcoin as a way of verifying transactions but it’s rapidly being adapted to other purposes and it’s even being heralded as a technological revolution.

Blockchain allows people or businesses to transfer any item of value – from intellectual property to money or physical assets – instantly and securely, without the need for a bank or other trusted third party.

Offering security over personal information and transparency over the actual transaction, blockchain technology is already being adopted by financial giants like JP Morgan, with global consultancies such as PwC developing capabilities to help businesses across the world tap into its potential.

Crowdsourced funding platforms

Crowdsourced funding operates in two main areas: equity-based investing and peer-to-peer lending.

Crowdfunding platforms facilitating both types of funding are edging out the banks as the first port of call for businesses looking to raise finance, for three main reasons:

  • Speed – crowdsource funding platforms tend to be more agile and fast-moving when assessing applications
  • Accessibility – for growing businesses that don’t meet the conservative criteria of banks or venture capitalists, crowdfunding provides an opportunity to access cash from investors with broader appetite for risk
  • Cost – established businesses can benefit from cutting out the time and costs involved in traditional equity raising campaigns, and sharing some of the savings with investors.

Alternative lending in Australia

There are more than two million small businesses in Australia, and more than half of them have some form of debt facility. Borrowing is one route for small businesses to upscale performance or expand into new markets.

The cash injection from a business loan allows businesses to take advantage of too-good-to-miss opportunities, like the chance to buy out a supplier or competitor, or buy equipment or inventory.

Bear in mind these three fundamental principles:

- The type and term of finance must match the business need

Long-term needs, like buying property, need to be matched with long-term financing like a mortgage or term loan, to avoid needing finance again when the loan matures. On the other hand, fluctuations in working capital should be covered with a flexible form of short-term financing, like an overdraft or business credit card.

- Keep the cash flowing

Running out of cash is the number one reason small businesses fail. A profitable business can be brought to its knees by late-paying clients or seasonal fluctuations, so it’s essential to have funds available when needed. But flexibility comes at a price, as at-call financing can be more expensive.

- The higher the risk, the more the cost

There are many different types, terms and structures of business financing, but one simple rule underlies them all: the bigger the risk, the more the loan will cost. Offering collateral can give rise to lower rates than on an unsecured loan. Super-risky financing options like Merchant Cash Advances can attract interest rates of up to 200% per annum because the lender has no recourse if sales are insufficient to repay the advance.

Instant bank transfers in 2017

The New Payments Platform (otherwise known as instant bank transfers) will go live in 2017 making Australia one of only three countries worldwide that do this (along with Sweden and Mexico).

As reported in the Sydney Morning Herald here are the key features that will be switched on:

  1. 24/7, 365 day instant transfers (no weekend or public holiday delays).
  2. New ‘Identifier’ technology that eliminates the need to know someone’s BSB or account number.
  3. The possibility for new payment apps and an overhaul of the direct debit system.
  4. Multiple payments for complex purchases (like buying a new car) can be synchronised simultaneously, including insurance payments for example.
  5. Changing financial service arrangements will be a lot easier as the ‘Identifier’ technology will remove the need to update direct debit authorities.

Check the official New Payments Platform site for more information.

A business that is profitable on paper can still end up bankrupt if the cash doesn’t come in on time to pay the bills. The alternative finance market can help with accessible finance options to small businesses.

“The speed of your success is limited only by your dedication and what you're willing to sacrifice” - Nathan W. Morris

 

Mary Paterson is a freelance journalist who writes about small business finance from personal experience.


 

Leave a Comment:

     

RELATED ARTICLES

Five ways to filter the fintech hype

banner

Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

Three all-time best tables for every adviser and investor

It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.

The looming excess of housing and why prices will fall

Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.

Five stocks that have worked well in our portfolios

Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Let's make this clear again ... franking credits are fair

Critics of franking credits are missing the main point. The taxable income of shareholders/taxpayers must also include the company tax previously paid to the ATO before the dividend was distributed. It is fair.

Latest Updates

Investment strategies

Joe Hockey on the big investment influences on Australia

Former Treasurer Joe Hockey became Australia's Ambassador to the US and he now runs an office in Washington, giving him a unique perspective on geopolitical issues. They have never been so important for investors.

Investment strategies

The tipping point for investing in decarbonisation

Throughout time, transformative technology has changed the course of human history, but it is easy to be lulled into believing new technology will also transform investment returns. Where's the tipping point?

Exchange traded products

The options to gain equity exposure with less risk

Equity investing pays off over long terms but comes with risks in the short term that many people cannot tolerate, especially retirees preserving capital. There are ways to invest in stocks with little downside.

Exchange traded products

8 ways LIC bonus options can benefit investors

Bonus options issued by Listed Investment Companies (LICs) deliver many advantages but there is a potential dilutionary impact if options are exercised well below the share price. This must be factored in.

Retirement

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Investment strategies

Three demographic themes shaping investments for the future

Focussing on companies that will benefit from slow moving, long duration and highly predictable demographic trends can help investors predict future opportunities. Three main themes stand out.

Fixed interest

It's not high return/risk equities versus low return/risk bonds

High-yield bonds carry more risk than investment grade but they offer higher income returns. An allocation to high-yield bonds in a portfolio - alongside equities and other bonds – is worth considering.

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.