Monthly Archives: March 2017

Financial Tech’s Disruption

“My six-month-old baby daughter is probably going to open her first bank account, not with an HSBC or a JP Morgan, but rather with a Facebook or Apple.” Financial technology (fintech) aficionado Henri Arslanian believes that in the future, banks will be obsolete.

Instead, people will turn exclusively to solutions such as Facebook or Amazon for their financial needs. He reasons that people are willing to trust Facebook with pictures of their children. And they trust Amazon to provide their daily essentials. It follows that there’s no reason why people wouldn’t also trust these companies to be in charge of their money.

Users are, in fact, already starting to do so since they can now send each other money through Facebook Messenger. This is just one example of how technology is upending the world of finance.

Financial tech changes such as cryptocurrencies are far removed from the lives of the average person. They are little understood at this point. But others are impacting our access to goods and services in our day-to-day lives. As they are doing so, the impact of fintech on business is bringing about some very real benefits, especially to small businesses.

Out of a Crisis, Fintech

As you might expect from its dependence on technology, fintech is a relatively new industry. Arslanian defines it as “the innovative use of technology in the design and delivery of financial services.” Put another way, when advances in technology start changing the way we handle financial transactions, we can call that fintech.

Fintech emerged to fill a gap. In 2008, banks were consumed with dealing with the fallout from the recession. They were unable to adapt their services to advances in technology and to people’s changing expectations. But technology progressed whether they were able to keep up with it or not.

Smartphones became ubiquitous. Consumers increasingly expect to be able to manage any aspect of their lives on their portable devices. This includes work, dating relationships, transportation (Uber), and finances. Fintech arose to meet a need the banks were simply not meeting.

The Impact of Fintech on Business

Breaking Boundaries in Business

The cryptocurrency bitcoin is an example of a fintech development that probably doesn’t affect the lives of most people — at least not yet. Created in 2008, bitcoin is entirely digital. No banks or government agencies regulate it, making it potentially groundbreaking for the world of finance.

While most people have probably heard of bitcoin by now, the average man or woman likely has no experience with it and does not really understand what it is.

Increased Mobility

But many of us have now made payments through Square, a company that enables the processing of credit cards through mobile. Companies are no longer restricted by location.

Credit and debit card payments are no longer limited to one machine that needs to be hooked up in one place. Now business owners can sell their wares anywhere they want to, whether across the world or in a local market.

Decreased Red Tape

Another advantage financial tech is providing for entrepreneurs is that it is making it easier for them to fund their businesses. Traditionally, startups had to turn to banks if they wanted loans. But now, through fintech, startups have other options, such as peer-to-peer lending.

Arguably one of the “greatest innovations to come out of the fintech movement, ” peer-to-peer lending is when many lenders contribute a portion of the money to a particular loan. To receive the loan, the business simply pays a monthly premium to the lending platform.

Fintech makes it possible for entrepreneurs to get funding much more simply. They no longer need to go through all the steps required to apply for a loan at a bank (during which a business might get rejected).

Crowdfunding (when a group of people donates money to a particular cause) is another new option for businesses looking for funding apart from a bank. While you do have to pay fees to benefit from crowdfunding, you also don’t have to pay the money back like you do with a loan. Kickstarter and IndieGogo are well-known examples of crowdfunding platforms.

Of course, these solutions are not magic bullets. For example, you can’t decide to crowdfund and then expect people to dump money on you, making your business a success. It’s important to have a strategy for your enterprise. But fintech is nevertheless opening doors that have previously been closed to startups.

Cause for Debate

As you might expect, uncertainty surrounds the fintech industry. Bitcoin is unprecedented both because it is digital and because it is controlled by users — not banks or governments. But it wasn’t long ago some were arguing bitcoin had already failed. This debate was the subject of an article from The Economist two years back.

It also doesn’t help that for much of its history, bitcoin has been associated with illicit activities, such as purchasing drugs on Silk Road, a former online black market. Yet bitcoin has gained legitimacy over time, particularly as investors have taken interest in it.

In the past several months, bitcoin’s worth has risen dramatically. On May 20, 2017, the price of bitcoin passed a record-breaking $2000.

Could financial technology make banks entirely obsolete? What could happen is that banks will adapt, possibly partnering with fintech companies to meet the needs of their customers.

Even though it failed pretty quickly, a partnership of Wells Fargo and Amazon to offer discounted student loans would be an example of such an adaptation. As one writer points out, “The argument towards fintech being perceived as a disruptor is largely due to the fact that fintech start-ups have the freedom to be a lot more nimble.”

Yes, fintech is filling the gaps left by the banks. But it is quite possible that financial institutions, which have the advantages of greater resources and a longer history, could wise up and take advantage of the innovations fintech is offering.

If they don’t, they are almost certain to become artifacts.

Future of Financial Tech

In his Afterword to Neuromancer, sci-fi author William Gibson wrote, “The future, whatever else it may be, is always infinitely, flagrantly, more peculiarly strange than the products of our imagination.”

It is hard to predict what the future of fintech will look like. But there is no doubt that it is already having a significant impact on our monetary transactions. As a result, it cannot help but affect the opportunities available to small businesses.

Small Businesses Can Rise Above the Healthcare Debate

Did you know there’s an alternative to the traditional route small businesses take when looking to get healthcare for their employees. You can pay an insurance premium to an insurance carrier and transfer the risk of covering any claims. However, there is a viable substitute.

“Self-insurance is an alternative,” says Mike Ferguson, CEO of the Self-Insurance Institute of America. “Instead of paying that premium up front to the insurance carrier, some companies decide they’d be better off paying the claims themselves as they are incurred.”

Simply put, the focus for a company’s healthcare costs gets shifted and becomes another operating cost of the business. Make no mistake, this isn’t a stop gap between Obamacare and Trumpcare. It’s a third option that takes the place of both.

Self-Insured Health Plans for Small Businesses

Standalone Option

Small Business Trends spoke with Ferguson and got the ABC’s of this standalone option.  He suggests that although there’s really no magic number that self-insurance is limited to  for a SMB, the 50 to 500 employee range is where this option is used most often.

According to the website,, self-insurance covers around 60 million individuals. Some of the benefits include giving the employer the ability to lower overall healthcare costs by avoiding the bumps in commercial insurance premiums and allowing for more direct and effective claims management.

Customized Plan

“Under a self funded model you can customize the plan to best meet the needs of your workforce as opposed to purchasing a more traditional group health policy that’s a more off the shelf kind of arrangement,” Ferguson says.

On the downside, there’s no surety of the claim’s costs without a set premium that doesn’t fluctuate over the year. This can make a difference in cost over the short term of one or two year periods, but over the longer run they tend to even out.

Stop Loss Insurance

That said, small and mid sized employers can purchase what is known as stop loss insurance which acts as a buffer against some of the higher claims costs that crop up through unexpected illnesses like some kinds of cancer. If claims exceed a certain amount the stop loss insurer covers the difference.

However, this option does require a more hands-on approach—you need to monitor the claims and take over the administration of any self-insured plan.

“The companies that are the most successful with self-insurance plans are the ones that realize this is a long term approach,” Ferguson says.

There are some small businesses better suited to the self-insurance model than others. Some of the characteristics that are a good fit include:  the bigger you are the better. That way you’ll be able to spread risk out and manage claims.

Ferguson explains how a strong balance sheet makes your small business a good candidate.

Good Cash Position

“You want to be a company with a good cash position because you need to be prepared to write a check when claims come in.”

Professional organizations like law firms and accountants fit the bill for self-insurance. Ferguson also points to work force stability as another litmus test. With employees that plan on staying, it’s easier to forecast the self-insurance costs.

If your small business is interested in setting up a self-insurance plan, the first step can be contacting a broker/consultant or third party administrator.

Help Your Business When You’re Strapped for Cash

In general, the times when you need money the most are going to be the times when it’s hardest to get.  Think about it from a lender’s perspective.  If you’re hemorrhaging money, you’re a lousy risk.  But even successful entrepreneurs have moments when there’s just an ugly money crunch, and the only thing that will get them past it is an influx of cash.  Here’s how to generate some $$$:

What to Do During a Business Cash Crunch

1. Stop the Bleeding

This step is absolutely the most critical.  You must step back and take a hard, dispassionate look at your company and find places to cut expenses.  Be creative, be ruthless, and if necessary, be willing to get an outside opinion.  If you don’t get your expenses under control, then you’re going to be perpetually short of money.

2. Get a Cash Advance

This option is great if you’ve billed clients and are just waiting for them to pay up.  A company called Fundbox offers in innovative solution.  Fundbox gives you an advance based on your invoices, you collect from the clients, and you pay off Fundbox, with interest, of course.  You don’t want to use this strategy as a day-to-day model, but it can help get you out of deep water.

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3. Dig Deep

If you’re sitting on valuable assets, you may have found the right time to sell them.  Whether you find a buyer for heirloom jewelry or you decide to take a second job, sometimes a sacrifice can make the difference between keeping your business afloat or closing up shop.

4. Crowdfunding

When your problem is one of capital for an expansion of your company, then crowdfunding can be manna from heaven.  If you’re going to make a go of crowdfunding, you need to prepare a compelling pitch (for which a freelance pro may be of use.)  The only downside is that money for crowdfunding can take quite a while to make it to your bank account, but if you have a brilliant idea that you simply don’t have to money to implement, crowdfunding may be your answer.


Don’t let the scary acronym (Rollover as a Business Startup) keep you from investigating this program that lets you use 401K funds for your company.  There are lots of restrictions, so make sure you understand the program.

6. Get a Loan

A loan won’t necessarily fix all your problems, but it sure can help with a short-term cash crunch.  And businesses now have more options than just begging at a bank.  Fundera is a fantastic lending operation that can help you with funds for any number of business needs.

7. Generate Cash

Okay, this may sound simplistic, but don’t leave any stone unturned when you’re in a fiscal crunch.  My favorite option is to create a special offering, whether it’s a discount or a new premium package and get your clients to buy in.  At the end of the day, it’s much healthier to bump up revenue rather than taking out a loan.

Finally, the best way to ensure your company doesn’t end up with a cash shortfall is to run your business profitably.  Putting profit first and setting aside your predetermined percentage of profit from every single bit of revenue will help you trim expenses and ensure your company remains financially solvent.