2018 was a big year for Fintech, and 2019 could be an even bigger year for small business. With more than 1,000 deals penned by November 2018, it's estimated that more than $35 billion was invested into Fintech startups last year. These companies, which do everything from offer all-in-one POS systems to simplified business loan processes, are paving the way for a more modern financial landscape.
Mastercard's startup program Start Path, which helps grow Fintech startups, collaborated with CB Insights to determine the major FinTech trends for 2019. Trends include artificial intelligence automating the banking industry, Fintech startups scaling globally and the emergence of open banking. Small business, however, may also be on the forefront of Fintech expansion in 2019.
"Just like consumers sitting on their couch that want to check their financial life on their mobile in a really delightful manner, the SMB owner is probably desiring the exact same thing," said Amy Neale, vice president and startup engagement lead for Start Path.
Small businesses are already the target of some Fintech companies. Both Kabbage and OnDeck, for example, provide small businesses with alternative loan options and quick approvals through online loan platforms. They also offer credit cards and other financial tools for new businesses.
Continued investment in the Fintech space means that small business owners could see new tools and platforms to meet their finance needs. Neale said she can see the overall technology experience improving for small business owners.
"My perspective is a little bit more on not new finance instruments but a better experience for the end user," she said.
Why small business?
For finance startups, entering the small business space means tapping into a market that is sometimes overlooked during the development of consumer-based technology. Several gaps have emerged where small business owners could use more efficient solutions. One area is in business loans.
While some Fintech companies (like Kabbage and OnDeck) provide business loans, SMBs are still being squeezed as community banks close and big banks raise their loan standards. More Fintech lenders with differing products could meet this need.
Start Path's study reflects this idea, taking it a step further and saying that lending is one of the few gaps startups have begun to address.
"SMBs remain underserved by established players that target bigger corporate customers, and additionally, the core of Fintech has largely been focused on helping SMBs obtain loans and financing," the study reads.
Other gaps include opening bank accounts, getting approved for credit cards, managing expenses and using more efficient payment platforms. Neale said Start Path is working with numerous companies looking to break into the small business space.
Extend, for example, is a digital credit card company that allows business owners to register for a card and send a unique card to anyone in the company with a spending limit and expiration date. This allows small business owners to better track spending among employees without suffering through a lengthy credit card application process with banks.
Similarly, Sensibill, an expense management company, is looking to provide small businesses with advanced receipt-capture features, like instant receipt processing, separating business and personal expenses, and linking receipts automatically to card transactions. These two companies are just two examples of many that are taking aim at the small business vertical.
Despite the enthusiasm around this space, there are still challenges. Neale said that while there is a ton of money pouring into Fintech, there are still funding challenges for early-stage companies.
"I think something that's becoming apparent is there perhaps is a little less money at the earlier stages," she said. "So it might be that VCs are moving up the stack instead of concentrating at the seed stage."
Start Path focuses on developing later stage startups and scaling them up to meet their goals. While the program doesn't take equity up front, it aims to foster relationships with startups for future business relationships.
"Investment definitely isn't our primary goal," she said. "They definitely become a part of our alumni portfolio … it's really important to us for them to know they can always come back."
The Fintech space is poised to grow significantly in 2019. As gaps in small business technology continue to emerge, startup programs like Start Path will look to foster companies looking to meet those needs.