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Fintech Goes Commercial: How to Prepare

Ben Schack, Head of US Digital Partnerships, BMO Financial Group [TSE: BMO]
Ben Schack, Head of US Digital Partnerships, BMO Financial Group [TSE: BMO]

Ben Schack, Head of US Digital Partnerships, BMO Financial Group [TSE: BMO]

Consumer-focused firms have captured most of the fintech headlines. Of course, widespread brand awareness is critical for business-to-consumer (B2C) firms, so it’s natural for those companies to be better known and to command media and industry attention. However, it’s not just headlines – there are, more B2C than a business to business (B2B) firms in the fintech arena.

Fintech lenders are a reasonable proxy for the industry. Analyses indicate there are~50% more consumer fintech lenders than small business lenders and only a tiny handful in right commercial, –– 2019 BCG Fintech Control Tower Report and BMO analysis. On the adoption side, 46% of U.S. consumers have adopted some form of fintech, compared with 23% of small and medium businesses—2019 EY Global Fintech Adoption Index.

Why do B2C fintechs seem to outnumber their B2B counterparts? One possibility is that consumer financial problems are better understood by individuals who personally experience the issues and the existing solutions. That makes the industry accessible to financial services outsiders, including influential technologists. Another possibility is that automation is most effective in the presence of higher volume, highly stable conditions – the types of situations that generally do not prevail in complex, commercial scenarios.

However, in recent years, B2B fintech appears to be gaining momentum – and this trend seems likely to continue. These business models take multiple forms, including selling technology solutions directly to companies, providing technology-enabled financial services to those companies, or selling to banks and incumbents to help reach end customers.

"Fintech lenders are a reasonable proxy for the industry"

Evidence of this trend can be seen in the increased levels of B2B fintech investment from venture capital firms and the venture arms of incumbent banks. An analysis of the 100 largest fintech venture rounds of the last year shows that more than half were for B2B firms—BMO analysis of Crunchbase data. Thus far, payments-related B2B fintechs seem to have the most significant momentum, though lending, insurtech, and financefocused regtech firms are also gaining traction.

Many of the successful corporate solutions have been built from the ground up. However, there’s also evidence of reliable answers from the consumer sector moving up-market into small businesses and, perhaps, to the corporate level. Of the various forms of fintech, personal lending has some of the best traction. These firms have extended upwards of $160 billion—

S&P Global Market Intelligence as of May 20, 2019—in credit, using advanced analytics and machine learning to fight fraud and manage credit risk. These same advanced techniques, with adjustments, could prove useful in a small business or even commercial lending.

Another overlap example is payments, where consumers and businesses share a desire for ever-faster transactions. Several peer-to-peer payment networks have emerged to achieve realtime or near actual-time fees. These rails are now extending to B2B or B2C payments to increase speed, reduce paper, and accelerate transactions.

Emerging technologies are also overcoming the historical challenges of bringing automation to business finance – specifically the lack of uniformity that prevails in complex commercial scenarios. AI-enabled solutions are now adept at handling unstructured data, non-uniform documents, and unique processes.

As more business-focused fintech solutions emerge, companies will enjoy more choice among fintechs, banks, and traditional technology providers. Technology decision-makers should determine whether their sourcing processes, institutional knowledge, and decision-making frameworks are prepared to handle this range of options. While new entrants and emerging technologies present opportunities, they also offer unique risks.

Decision-makers should also pay attention to hybrid solutions borne of creative partnerships between these players. Such collaborations may deliver the best of all worlds – robust technology, financial know-how, risk management expertise, and understanding of unique commercial challenges.  

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