Fintech firms are rapidly becoming mainstream as the pandemic pushes businesses to embrace financial technology.
Small business owners have been among the first to use online financial services firms, particularly when they started feeling the brunt of economic impacts from COVID-19. Because fintech firms had already been operating online for years and had proven technology in place, they were often better able than large institutions to respond quickly to customers’ needs and provide support.
“Prior to this crisis you had fintechs specializing in the under-$50,000 loans,” said John Pitts, a former deputy assistant director of intergovernmental affairs at the Consumer Financial Protection Bureau and current head of policy at Plaid, a fintech firm that connects personal finance apps with banks and credit unions. “It’s not surprising you don’t see this cohort well served” by the big banks.
Fintech firms have adapted readily to the changing financial landscape wrought by the pandemic and are quickly seizing the new opportunities to be found within it. Demand has been especially high for firms to serve as intermediaries between small businesses in need of loans and financial institutions with money to lend. Technology companies are able to quickly aggregate and organize data, such as the detailed information needed for loan applications, and deliver it to the banks.
“We sit on top of a network of 100 banks,” said Everett Cook, CEO and co-founder of Rho Business Banking. “It gave us a fair perspective of what was going well and what was going poorly.” Rho saw the opportunity to help people access loans from any institution, versus going to a single bank. “We saw lots of customers come to us because they were in the queue of a top-five bank,” he said. “The large banks prioritized the businesses they knew. That created a flood of applications for everyone who didn’t fall into that box.”
Edward Kim, co-founder and CTO of fintech payroll company Gusto, described his company’s role as “getting all the gnarly parts into one document to get this loan approved as quickly as possible so someone at a bank isn’t scrutinizing it.” More established payroll companies offer similar services, but Gusto has the competitive edge, since its low-cost online model meant it already had a bigger share of the small business market.
Overall, as legions of employees started working from home, many fintech companies saw demand for their services grow almost exponentially. Rippling, whose platform supports human resources and IT functions, gained an influx of new customers that had been reluctant to change their processes, but suddenly had little choice. “Any exogenous shock to the system favors companies that can move quickly and take advantage of those things,” said co-founder and CEO Parker Conrad. “All the reticence about doing things online evaporated in an instant.”
In the longer term, post-pandemic and beyond, “What all these companies are counting on is that businesses, forced to do things differently in the crisis, will continue to use fintechs for more of their needs,” the New York Times observes. Conrad is confident they will. “Things were already moving in this direction,” he said. “What would have been holding people back was the inertia. Once people move, the inertia works in the other direction. Who wants to go back to filling out insurance paperwork with a pen and trying to find a fax machine? No one.”