FinTech responds to the pandemic: Supporting small businesses

The current COVID-19 outbreak is starting to take its toll on the global economy, with small businesses and self-employed individuals being heavily impacted. Whilst many governments around the world have been reactive in developing and implementing initiatives to help small businesses and the self-employed, these can sadly take some time to come into force. Thankfully, some financial services providers have been proactive and quick to respond to the realities of the current pandemic. Below we highlight a collection of examples of how the industry is supporting small businesses and the self-employed in areas they need help the most, including accepting payments, managing cash flow or accessing finances.

Accepting online payments

Although e-commerce has been gradually gaining ground for over a decade now, the current store closures and limitations on cash payments have made the ability to accept online forms of payment vital for the survival of businesses.

By targeting merchants lacking or having a limited online presence, Wirecard has recently made a set of low-cost digital payment solutions available as part of its ‘Innovation for Now’ initiative. European businesses will gain free or discounted access to a range of digital payment methods, including a pay-by-link solution enabling merchants without an online presence to accept digital payments via hyperlinks sent by email or social media messaging platforms.

Similarly, DBS in Singapore is working with local start-ups Oddle and FirstCom to help its small business customers such as cafés and restaurants to quickly set up online food ordering and delivery services, allowing these businesses to maintain access to their consumer bases during enforced lockdowns.

In Kenya, telco Safaricom has collaborated with the country’s central bank to make its M-Pesa mobile money service more accessible and affordable to Kenyans. Next to waiving all fees associated with low-value peer-to-peer transactions, daily transaction limits have more than doubled to KSh150,000 (US$1,500) in order to support small merchants in accepting more mobile money payments as opposed to cash.

The accelerated volume of digital payments, especially in e-commerce and m-commerce, is likely to increase the incidence of chargebacks and fraud-related issues. Therefore, it is vital that acquirers and card schemes provide proactive support to merchants, especially those unaccustomed to large online payment volumes, with the likes of Elavon and Visa among the first to offer guidance and best practice regarding dispute management to their customers.  

Managing suppliers and cash flow

With small businesses in most industries experiencing significant revenue drops, cash flow management is among the most imminent issues SMEs and self-employed individuals are currently facing. In a response to the pandemic, Roger, an accounting automation software, is speeding up the release of its cash flow management tool, which is designed to help small businesses and their vendors to control the speed of payments, as well as negotiating payment terms and discounts. The solution enables struggling businesses to request to pay later, while at the same time, businesses can also support struggling vendors by paying them earlier than scheduled.

Other players in the cash flow and supplier management space have also been active in responding to the pandemic. Xero, the accounting software company, has put forward a number of initiatives – including setting up a ‘Business Continuity Hub’ to provide guidance to customers about the implications of the pandemic and related government measures, as well as utilising its small business database to help governments globally identify the small businesses most in need of funding. Furthermore, SAP Ariba, the supplier and spend management company, has made its ‘Discovery’ service accessible free of charge, enabling the 4 million suppliers in its network to find and be matched with prospective buyers.

Accessing finances

Among all areas of financial services, financing solutions are likely the most coveted among small businesses currently, as they look to bridge the revenue gap during the pandemic. While government programmes across the globe include an increasing share of small businesses, some segments have to rely on private solutions to obtain much needed funding.

One compelling example is Covid Credit, a solution developed by the U.K. FinTech community including players such as Fronted and Credit Kudos. Covid Credit is a free open banking tool enabling self-employed workers in the U.K. to generate a proof statement demonstrating their loss of income when applying for financial support. If approved by the U.K. Government, the services could help 5 million self-employed individuals across the country to obtain income relief amid the pandemic.

Targeting the same segment, Ebury, a small business financing solutions provider backed by Santander, will reportedly start offering loans to businesses that do not qualify for government schemes. With the vast majority of applications for government funding reportedly unsuccessful, the pool of £40M made available by Ebury could provide quick relief to thousands of small businesses in the U.K.

In the U.S., the recent partnership between Modern Bank and OakNorth is a good example of how incumbents and FinTechs can work together to address the needs of small businesses. As part of the collaboration, the bank will use OakNorth’s online onboarding solution to manage the expected influx of small business applications for its financing programme offering loans of up to US$10M to cover costs associated with payroll, rent and utilities. 

Different players in the financial services sector have shown swiftness in response to the current situation and creativity to help businesses through these unprecedented times. Whether by lowering or waiving fees, updating existing solutions, or even launching solutions customised to current needs, these initiatives are helping ease the pain of small businesses and self-employed individuals.

How altruistic these efforts are could be questioned, but these initiatives may well prove to be highly effective in dampening the impact of the pandemic and help support the wider economy in the long run. For this, these initiatives should be applauded.

For the providers themselves, their initiatives may prove to be an effective way to build emotional brand equity. In the post COVID-19 world, it is not unrealistic to envisage emotional value playing an increasingly important role in determining business success, so any investments now may pay out in the future.