Kabbage co-founder ponders legacy loans, fintech trends and more
Last year has been a tumultuous year for many individuals and small businesses, but fintechs helped expand access to financial services during the pandemic.
One recently study, which collected data from 1,385 fintechs in 169 jurisdictions from mid-June to mid-August, showed that most types of firms in this space saw strong growth in the first half of the year compared to pre-pandemic a year earlier.
In particular, companies in areas such as the exchange of digital assets, payments, savings deposits and asset management recorded an average growth in transaction numbers and volumes of 13 percent and 11 percent, respectively, according to the study. Digital lending declined 8 percent by transaction volume and saw outstanding loan defaults rise 9 percent.
With this in mind, Forbes recently met Kathryn Petralia, co-founder of Kabbage, the fintech startup that helped transform the finance landscape for small businesses. The company was bought by last year American Express at a time when many fintech players – especially alternative lenders – were under pandemic pressure, making independence a less attractive option. Among other things, Petralia addressed topics related to the alternative credit landscape, fintech trends that are foreseeable on the horizon and the M&A atmosphere.
Forbes: On the whole, can you discuss some of the difficulties online lenders and financiers continue to face due to the pandemic, and how do you see these challenges this year and what possible solutions could it be?
Petralia: Lenders are inextricably linked to the success of borrowers. As long as borrowers face challenges in the market, lenders will feel some adverse effects. Small businesses in particular are bearing the brunt of the economic consequences of the pandemic. Fortunately, the data shows that small businesses are starting to recover. One recently American Express report found that 75% of small businesses are optimistic about their business rebound in 2021. It’s the job of financial services providers to offer solutions that meet their needs today – from cash flow management to lower fees and charges.
Forbes: What trends do you see for the coming year in the financial fintech space by and large, beyond lenders and financiers?
Petralia: Integrated platforms are becoming the norm. It is no longer enough to just offer a product and force customers to create pieces of solutions that cannot communicate and offer no additional intelligence. The pandemic has been exposed where small businesses have cash flow gaps and operational blind spots. Fintechs can offer a full suite of solutions that not only meet the immediate needs of the customer, but also encourage greater trust and prudence in running their business.
Forbes: What types of companies do you think will come out to help people in their financial lives?
Petralia: For small businesses, I remain optimistic about solutions that help customers manage cash flow. Small business owners already stretch out for way too many jobs. Today’s advances in machine learning and analytics can offload many of these daily tasks more efficiently, allowing them to focus more on their business while reducing stress. In addition, I hope for more solutions aimed at helping the underserved customers – from low-income consumers to marginalized businesses and women or minority owned businesses.
Forbes: How, if anything, has the pandemic affected the growth of financial fintech and what do you think the long-term effects will be?
Petralia: It has undoubtedly advanced the industry. Acceptance rates for online financial solutions such as contactless payments and digital bank accounts have skyrocketed as consumers and business owners alike sought new solutions. Actually the same the AMEX report showed that 77% of small businesses plan to primarily offer their products and services online in the next year.
Forbes: In the midst of the pandemic, where is the greatest need and what are the biggest problems for consumers that fintechs will address?
Petralia: It all boils down to the user experience and on-demand consumer expectations. Banks are becoming increasingly commodified. Fintechs will become the de facto face of money management as they deliver exceptional user experiences that eliminate friction points common in traditional banking. It shouldn’t take days or weeks to open a bank account, days to settle funds, or months to get a loan approved. Fintechs will make financial services more seamless and accessible to all.
Forbes: How do you see the M&A horizon for financial fintech in the coming year?
Petralia: It will reflect the points above. Vendors, new or old, will try to buy solutions that expand their solutions, integrate the customer experience, return data-driven insights to the customer, and simplify previously tedious processes.