Businesses of all shapes and sizes, both online and offline, always look for new ways to increase ROI. FinTech (short for financial technology) solutions open up new avenues and provide eCommerce businesses and consumers alike, with faster more efficient access to capital, currency exchange and much more. But, did you know that FinTech products have proven time and time again to generate large ROIs for eCommerce businesses? In fact, not taking advantage of FinTech solutions can actually cost your business money. For example, you may not be able to get a traditional loan fast enough to restock your best-selling product in the middle of the holiday shopping rush and you’ll probably miss out on sales if you don’t offer your customers quick and convenient financing options.
Even businesses that do qualify for and use traditional financing options such as term loans can easily benefit from and use FinTech products either on their own or alongside traditional financing. Not only do FinTech companies offer products and solutions that banks do not, they also tend to be more flexible and many don’t depend on your credit to make underwriting decisions. So if you’ve used up your line of credit to buy inventory for your busy season, but still need to buy shipping materials to fulfill all of the orders you just got, you may want to consider an alternative financing solution to get approved for funding fast without a credit check rather than miss out on all of those sales or not be able to fulfill your orders on time.
Here are a few key ways FinTech solutions can increase your ROI and help you build a bigger, more versatile eCommerce empire.
If you’re going to grow your business, chances are you’re going to need outside financing to scale. While traditional financing options such as term loans and SBA loans do work for some eCommerce businesses and offer both low rates and long payment terms, approval processes are long, so if you need the money right now they may not do you any good. That is if you even qualify. Many traditional funding solutions require at least two years in business, credit checks, tax documents and more. So even if you’re a seven figure seller, chances are you won’t qualify for a bank loan unless you’ve been in business for two years.
Bank’s approval processes are outdated. Believe it or not, bank underwriting processes are really still only designed for large and established brick and mortar businesses. They often require you to put up inventory as collateral or might want to see your physical storefront. This isn’t exactly possible if you use FBA and your inventory is spread across many different Amazon warehouses. Plus, if you’re a home-based business it’s ever harder for banks to even give you the time of day.
Pro Tip: If you are in the process of making a large purchase such as a property or vehicle that will require more traditional financing, but still need extra funds to run your business, you may not want to take or apply for financing that affects your credit. Even if you don’t end up accepting the offer, your credit score will be affected just by a recent credit pull. So you may want to consider a solution where approval is based on factors other than credit. At Payability, for example, we underwrite customers based on their marketplace account health and sales performance. So applying for or using any of our services never hits your personal or business credit.
Finally, when we talk about FinTech financing for eCommerce businesses, we aren’t just talking about financing for you and your business. You should also use FinTech solutions to give financing options to your customers. Companies such as Affirm provide buyers with convenient financing solutions at the point of purchase giving you even more sales.
Speaking of banks, online banks provide SMBs of all sizes with better interest rates and little to no fees. While business bank accounts at traditional banks often come with high fees and minimum deposits, online banks such as Rho Business Banking offer high APY on both checking and savings accounts, no minimum deposits and even added analytics about your business. So if you’re not walking into the bank branch to make deposits or to talk to your banker, then why are you paying for all that real estate?
If a traditional business bank account is only providing you with unnecessary fees and no added value or if you hesitate to even open a business bank account due to the fees and minimums, an online business bank account can not only save you money, but also make you money off the deposits you’re going to have anyway.
Global Currency Exchange
eCommerce businesses often have to pay suppliers and freelancers overseas. Or maybe you’re selling outside of your home country and need to convert foreign currency to your home currency. If you are going to your bank to do this, chances are your currency conversion strategy is going to be costly, time-consuming and ineffective. While banks do provide global currency conversion services, they are expensive and aren’t set up for large scale operations.
Currency conversion companies such as OFX can provide you with a global currency account where you can easily pay all of your venders and convert payments to your business into your home currency for much less than what a bank would charge you for the exact same service.
According to David Nicholls, Director of Enterprise Business Development at OFX, there are two points you should be aware of when it comes to global currency exchange. The first is that your funds might be getting converted to or from USD (or any other currency) at an expensive exchange rate.
“Many businesses are unaware that banks and payment processors are charging them up to 3% for converting currency, that’s $3,000 on every $100,000 you send or receive. This fee is hidden in the exchange rate so it’s hard to see. Therefore, many businesses don’t even realize it,” said Nicholls. “Test this yourself by looking at the exchange rate online compared to the one you get from your provider, it will be different and that difference is the fee. So if you are selling products or paying funds overseas, speak to a specialist to find out exactly what you are currently paying and if you can reduce this cost by negotiating a better deal.”
The second is that exchange rates change all the time. The currency market can be more volatile than the stock market. When selling overseas or paying suppliers, costs can move by more than 2% a day. Not managing this fluctuation can hit budgets hard if the market moves against you.
“Fortunately, there are simple ways you can manage this too. One way is to use a specialist FX provider who can help you hedge these fluctuations by securing an exchange rate for a fixed amount of currency up to one year in advance. Once it’s fixed, currency movements won’t cost you,” said Nicholls. “Another way to manage currency risk is to offset any invoices or required payments in another currency, such as taxes, by sales revenue in the same currency. This will require you to hold an account in that local currency to collect overseas revenue and make those payments. If you can’t or don’t want to open a foreign bank account, then a good FX specialist will be able to open one of these for you.”
More Overall Options
They say money doesn’t buy you things, it buys you options. So the more financing options SMBs have the better. Big businesses have always had a ton of financing options and FinTech solutions provide businesses of all sizes with a wider array of services and offerings for businesses and use cases that banks may not be able to work with. No matter if you use them or not, it’s good to know that alternative funding options are there to help you when you need them.