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The Pros and Cons of Taking on Personal Debt to Start Your Business

Jun 7, 2024

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Becoming a small business owner can be a dream come true. It means independence, doing things your way, and if your business model works, it can be the career move you needed to stay motivated when you wake up every morning.

Opening your small business and keeping it going in those early years costs money. Whether it’s paying a lease for a storefront, making sure suppliers get paid, or just giving yourself a runway to start finding clients and earning revenue, you need some cash up front to get the ball rolling.

One way to raise that capital is by taking out a personal loan. A personal loan is a line of credit that you can use for any number of reasons. Unlike a mortgage or car loan, there are no hard rules about how you can spend the money. The interest rate is typically lower than a credit card. The loan can either be unsecured or require collateral.

It can be a big risk taking out a personal loan to fund your small business, whether you’re just getting started or trying to keep your business afloat. Once you involve your personal finances, you’re on the hook for that money, whether your business survives or not.

How To Deal with Personal Debt from Your Small Business?

When you take out personal debt to help your business survive, you’re betting on your business’s ability to ride out the storm and eventually pay you back. That’s now always how the story goes, and if your business fails, you can find yourself facing a large personal debt and no way to pay it back in a reasonable period of time.

Your options for dealing with that debt depend on whether it is a secured or unsecured loan. Talking to a Licensed Insolvency Trustee is a great place to start. You can find out about debt relief options from sources like BankruptcyCanada.com and compare options like bankruptcy and consumer proposals.

If your debt is secured, you had to put up collateral, such as home equity or another asset. In that case, you may have to sell the asset to pay back your debts. Otherwise, the lender may be able to put a lien on it or seize it altogether. A lien is a legal claim to the asset that may allow the lender to seize it.

However, if your debts are unsecured, such as a personal loan or credit card debt, debt relief may be a better option. While bankruptcy is often the first thing people think of when they’re stuck deep in debt, consumer proposals are often a better choice that will protect your personal assets.

If you find yourself having to file bankruptcy, assets such as property and investments can still be at risk. A consumer proposal works quite differently.

Working with a Licensed Insolvency Trustee, you come up with a plan for repaying a fraction of the debt you owe over a period of up to five years without having to struggle against interest rates. You can wind up paying as little as 20% of the amount you initially borrowed.

See:  The AI Litmus Test: Good Businesses are Good Businesses, With or Without AI

Understanding what happens with debt when you can’t repay it can help you make better decisions for yourself and your business.


NCFA Jan 2018 resize - The Pros and Cons of Taking on Personal Debt to Start Your BusinessThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Zum Rails’ Major AI-Driven BaaS Initiative and Strategic Hire

Release | Jun 7, 2024

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Image: Zūm logo

Zūm Rails hires Miro Pavletic to lead new AI-driven banking project

A scaling Canadian fintech business Zūm Rails has announced the hiring of Miro Pavletic who joins Zūm to manage its large-scale AI-driven Banking-as-a-Service (BaaS) project. This is a key move to expand Zūm Rails' unique financial offerings and solutions.

Miro Pavletic

Fintech expert with a wealth of banking and finance experience, Miro Pavletic joins Zūm Rails as a key player in their newest project. Previously, Pavletic was the Co-founder and CEO of Stack, a digital challenger banking app that was acquired by Credit Sesame in 2020.

See:  Züm Rails’ $10.5M Boost for North American Expansion

Pavletic will lead Zūm Rails’ BaaS product roadmap, which will integrate with Zūm Rail’s current payment services and include real-time fraud assessment, identity validation, and transaction settlement capabilities. Pavletic is committed to accelerating the development and implementation of these features on a unified platform, enabling businesses to surpass regulators' open banking deadlines and utilize artificial intelligence to effectively manage risk.

Key Developments and Financing

Since founding in 2019 Zūm Rails self-funded its way to profitability and has become a significant player in the North American payments market. Their 'omni-rail' solution combines instant payments with open banking to create a streamlined transaction process that supports multiple payment methods like Visa Direct, Mastercard, direct bank account linking, and Canada's Interac network.

In February of this year, Zūm Rails was in the spotlight when it successfully completing a $10.5 million CAD Series A fundraising round led by Arthur Ventures. The purpose of this capital infusion was to strengthen their open banking and quick payment capabilities, as well as to increase their market share in the United States.  The company intends to launch new BaaS capabilities and a FedNow service in the United States that will allow companies to process FDIC-insured payments in a matter of seconds.

See:  Implications of the BaaS Synapse Collapse

Firms like Plaid, Finicity, and established banks that are pursuing open banking are a few of Zūm's core competitors. Zūm Rails stands out in a crowded market thanks to its seamless integration of quick payments and open banking. This is the core of its unique value offer (in a fragmented market).

Closing Outlook

Zūm Rails is in a strong position to grow its market share and accelerate its creative activities, thanks to the smart hiring of Miro Pavletic and recent funding injection. As Zūm continues to innovate, stakeholders can expect a wave of new developments that will enhance the efficiency, security, and scope of financial transactions across North America.


NCFA Jan 2018 resize - Zum Rails' Major AI-Driven BaaS Initiative and Strategic HireThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Minimizing Disruptions: How Managed IT Services Reduce Business Downtime

Jun 7, 2024

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Key Takeaways:
  • Managed IT services provide proactive monitoring and maintenance to identify and address potential issues before they escalate, ensuring smooth operations and preventing unforeseen downtime.
  • With regular updates and patching, managed IT services keep software and systems secure and optimized, integrating seamlessly with other tools and maintaining peak performance.
  • 24/7 support from managed IT services ensures that any arising issues are resolved immediately, minimizing disruptions and maintaining business continuity strategy for global and round-the-clock businesses.

Have you ever had that sinking feeling when your computer screen freezes in the middle of an important task? Now, imagine that happening to your entire company network. Disruptions to your IT infrastructure can be a nightmare, halting operations and costing your business valuable time and money.

That said, this guide will equip you with a powerful weapon against system downtime: managed IT services. It will explore how these services not only minimize disruptions but also free up your valuable resources, allowing you to focus on what matters most – running your business.

Proactive Monitoring and Maintenance 

Reliable IT support service providers, such as managed IT services by Antisyn, continuously monitor systems for any signs of issues. By constantly monitoring your systems, they act as your silent IT observers.  These watchful experts can identify potential problems before they become major headaches. They can then address these issues proactively, preventing downtime and ensuring your operations run smoothly. No more scrambling to fix unexpected disruptions – managed services keep your technology humming along in the background.

Regular Updates and Patching 

Managed IT services act as your responsible tech crew, ensuring your software and systems are kept up-to-date. This goes beyond just security patches - it's about optimizing performance too.  Regular updates not only keep your data safe from vulnerabilities, but also ensure your systems run smoothly and seamlessly integrate with other tools.

24/7 Support 

Having round-the-clock support means that any issues that arise can be addressed immediately, no matter the time. This minimizes downtime and ensures that any disruptions are quickly resolved. With 24/7 support, organizations are assured that critical systems are always operational. This continuous availability is particularly crucial for businesses with global operations or those that offer services outside of traditional business hours, as it ensures seamless service delivery and customer satisfaction.

Disaster Recovery and Backup Solutions 

Managed IT services prioritize robust disaster recovery plans and backup solutions to mitigate the impact of system failures or data loss. These solutions enable swift recovery, minimizing disruptions to business operations. Comprehensive disaster recovery plans encompass regular data backups, redundancy measures, and detailed recovery protocols. By implementing these strategies, critical data can be promptly restored, even in the event of catastrophic incidents, allowing small businesses to resume operations with minimal downtime and safeguarding against significant losses.

Scalability and Flexibility 

Managed IT services can scale resources up or down based on the organization’s needs. This flexibility ensures that the IT infrastructure can handle varying loads without causing disruptions. During peak times, additional resources can be allocated to meet increased demand, while during slower periods, resources can be scaled back to reduce costs. This adaptability not only enhances performance but also allows businesses to respond swiftly to changing market conditions without the need for substantial capital investment in IT infrastructure.

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Expertise and Best Practices 

Managed IT services offer a solution, acting as a trusted advisor for your business. These experts understand your unique needs and take over the burden of IT maintenance, security, and troubleshooting. Their deep knowledge ensures your systems are configured optimally, minimizing disruptions and keeping your technology running like a well-oiled machine. Their expertise ensures your systems are configured optimally, minimizing disruptions and keeping your technology running smoothly.

Security Management 

Managed IT services protect the organization from cyberattacks and other security breaches that can cause significant disruptions by continuously monitoring for security threats and implementing robust security measures. Comprehensive security management includes the deployment of firewalls, intrusion detection systems, antivirus software, and regular security audits. These measures not only prevent unauthorized access but also ensure compliance with regulatory requirements, thus avoiding the operational and reputational damage that can result from security incidents.

Efficient Incident Management 

Managed IT service providers have streamlined processes for handling incidents. This efficiency ensures that any disruptions are managed effectively and resolved quickly, minimizing their impact on the organization. Incident management protocols include clear communication channels, predefined response plans, and continuous improvement practices. These protocols ensure that when issues arise, they are promptly addressed by the right personnel, reducing downtime and maintaining business continuity.

Vendor Management 

Managed IT services handle relationships with hardware and software vendors, ensuring that any issues with third-party products are resolved quickly and efficiently. This reduces the time and effort organizations need to spend on dealing with multiple vendors, ensuring faster resolution of issues. Effective vendor management also ensures that the organization receives the best possible service and pricing, and that all products and network services are fully integrated and compatible with existing systems.

User Training and Support 

Picture an office where technology is an ally, not a foe. Managed IT services make this a reality by equipping employees with the know-how to harness the power of their digital tools. Regular training sessions and accessible support empower users, reducing frustrating tech hiccups and misuse. They'll no longer be shackled by technological uncertainty, freeing them to unleash their full productivity and truly master the tools they use every day. This translates to a win-win situation: a more efficient workplace with a team that's confident in their ability to leverage technology effectively.

Conclusion 

Managed IT services offer a compelling strategy for businesses seeking to minimize disruptions and ensure smooth operations. Imagine a world where technological glitches are mere hiccups, not major disruptions. That's the reality when you embrace proactive maintenance, robust security, and swift recovery protocols.

See:  10 Innovative Product-Led Growth Strategies

By partnering with a team of IT experts, your business gains a trusted advisor. They'll navigate the ever-evolving technological landscape for you, taking the burden of maintenance, security, and troubleshooting off your shoulders. This frees you and your team to focus on core objectives without constant tech woes hindering your progress.


NCFA Jan 2018 resize - Minimizing Disruptions: How Managed IT Services Reduce Business DowntimeThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Paxos International Launches Yield-Bearing USDL Stablecoin

Stablecoins | Jun 6, 2024

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Paxos International Introduces Lift Dollar (USDL) Regulated in the Abu Dabi Global Market (ADGM)

The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) has regulated Paxos International, an affiliate of Paxos, as an entity who has announced the launch of Lift Dollar (USDL), a regulated yield-bearing stablecoin, that offers daily interest directly into users' wallets while being closely supervised by regulators.

Highlights

  • Short-term, highly rated, liquid US government securities and cash equivalent reserve assets will offer returns for holders of USDL. Every day, the yield is sent to holders' wallets programmatically using an Ethereum smart contract.

See:  PayPal Introduces Confidential Stablecoin Transfers

  • USDL operates under a strict regulatory framework of the FSRA ensuring Paxos International
  • USDL is backed 1:1 by US dollar deposits just like other stablecoins issued by Paxos. This ensures stability and promotes growth through daily dividends.

Charles Cascarilla, Member of the Board of Directors of Paxos International:

"USDL is a first-of-its-kind—a regulated product, earning and paying safe yield on a daily basis. Until now, only centralized issuers have benefitted from the economics of stablecoin reserves. Paxos International has reimagined this dynamic so that all token holders can safely use and grow their regulated USD stablecoin holdings."

Stablecoins Continue to Innovate

Other Examples of Yield-Bearing Stablecoins

With a market capitalization of $162.3 billion currently, stablecoins have been growing and diversifying significantly. By 2024, there will be a number of yield-bearing stablecoins available worldwide, and new players are entering the market on a regular basis. A few noteworthy instances that provide yields using different financial methods are as follows:

  • Midas (stUSD): This stablecoin interacts with decentralized finance (DeFi) platforms like as Uniswap, MakerDAO, and Aave, and is backed by US Treasury securities. By using Circle Internet Financial's USDC and asset management BlackRock as on-ramps, it seeks to generate yields.
  • The Archax Yield Service provides stablecoin holders with yield-generating products like regulated Money Market Funds (MMFs). This enables owners of stablecoins to transform their assets into yield-bearing, regulated, tokenized holdings.

Market Trends

  • The market is still led by USDC and USDT thanks to the US dollar's worldwide clout and the current higher interest rate environment.
  • The demand for low-volatility assets and the integration of cryptocurrencies with established financial systems are stoking interest in stablecoins linked to regional fiat currencies.
  • With frameworks like MiCA (Markets in Crypto-Assets) offering clarification and FIT21 presently before the U.S. Senate, regulation is becoming more clear. In order to give the stablecoin market more transparency and clearer norms, regulatory frameworks are changing. Because of the FSRA's strict regulatory control, USDL and related products are kept up to date with dependability and confidence.

See:  Moody’s Analytics on Stablecoin Depegging

  • Innovations like USDL, which offer yield directly to holders, are setting new standards in the stablecoin market​ by offering income-generating opportunities, making them attractive to a broader range of investors.
  • Overcollateralization and diversification of collateral are emerging as key strategies to ensure resilience and stability of stablecoin ecosystems and help mitigate risks associated with single-point failures in collateral assets​.

Overview of Abu Dhabi Global Market (ADGM)

Situated in Abu Dhabi, United Arab Emirates, on Al Maryah Island, ADGM is an international financial hub. ADGM was founded in 2013 with the objective of strengthening Abu Dhabi's standing as a worldwide centre for finance and business.

  • Operates on its own legal framework founded on English common law, guaranteeing strict rules and guidelines for conducting business. The main regulatory organization in ADGM is the FSRA.
  • Provides a broad range of financial services, with a focus on fintech advances, including capital markets, asset management, banking, and insurance.
  • Has launched a number of programs, such as the Regulatory Laboratory (RegLab), a sandbox program to aid in the creation of cutting-edge financial services and products.

See:  Challenges in Global Crypto Regulations – Lessons from Dubai

  • Attracts international capital and encourages economic diversification, both of which are important contributions to the UAE's Vision 2030.
  • By offering a controlled environment for digital asset trading and custody services, it has taken the initiative to promote the ecosystem of digital assets.

ADGM provides a business-friendly environment:

  • 100% ownership by foreigners
  • No limitations on the repatriation of capital
  • Tax breaks for a predetermined amount of time
  • A thorough legal and regulatory framework that guarantees the efficiency and transparency of corporate operations

Outlook

With the introduction of USDL by Paxos International, stablecoins have entered a new era that promises stability and yield in a regulated setting, which is well positioned to propel and transform the digital asset landscape.


NCFA Jan 2018 resize - Paxos International Launches Yield-Bearing USDL StablecoinThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Why Small Businesses Should Embrace Remote IT Support

Jun 6, 2024

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As small businesses rely more and more on technology for their day-to-day operations, the need for reliable IT support has become crystal clear. Remote IT support offers a valuable solution, aligning perfectly with the needs of modern small enterprises. This approach cuts costs and connects businesses with top-tier IT expertise and advanced technologies, all without the need for an extensive in-house IT department. Its relevance in today's fast-paced business environment is undeniable, providing a strategic advantage to those ready to adopt it.

This article explores why remote IT support is becoming an essential part of the business landscape, offering small businesses the tools they need to manage their technology effectively and stay competitive in a digital marketplace.

Enhanced Security

Cybersecurity is a critical pillar for small businesses, as these entities are frequently targeted by cyber threats due to perceived vulnerabilities in their defenses. Remote IT support plays a vital role in fortifying these businesses against such risks. By partnering with remote IT professionals, small businesses gain access to comprehensive security measures that include regular software updates and rigorous threat monitoring. For more detailed insights on implementing robust IT security measures, go to www.pcs-ms.com.

Remote IT teams use advanced tools and protocols to ensure that all data handled by the business is secure from unauthorized access and breaches. The implementation of robust security practices such as multi-factor authentication, end-to-end encryption, and regular vulnerability assessments are standard with these services. This high level of security allows small businesses to concentrate on their core operations without constantly worrying about cyber threats.

Proactive Monitoring and Management

Proactive monitoring and management are essential components of remote IT support, offering significant benefits to small businesses. This service includes 24/7 monitoring of a company's IT infrastructure, which ensures that potential issues are identified and addressed before they can escalate into serious problems. Regular maintenance and updates are performed to keep systems running efficiently and securely. According to Attentus's tech team, implementing proactive network monitoring and management can significantly reduce such problems, enhancing operational efficiency.

There are many benefits to having a dedicated team always keeping an eye on the IT environment. Firstly, it minimizes downtime, as the early detection of irregularities or malfunctions allows for swift resolution. This consistent oversight helps maintain optimal performance of IT systems, which in turn supports smooth business operations. Additionally, it takes a load off small business owners, who might not have the skills or resources to handle complex IT systems themselves.

Access to Expertise and Cutting-Edge Tech

Building an in-house IT department with a wide range of specialties can be challenging for small businesses that are often characterized by limited resources. This is completely altered by remote IT support providers. They provide a deep bench of skills including cyber security specialists, cloud computing professionals, network infrastructure experts and software application developers. However, when complex problems come up you don’t have to rely on just one IT person; instead you have access to the knowledge and experience of many practitioners in the same field.

Moreover, remote IT support teams are continually training and updating their skills to stay ahead of the curve. This means your business benefits from the latest IT technologies and best practices, without the burden of investing in ongoing education for in-house staff.

For example, your remote IT provider might introduce you to cloud-based solutions that streamline operations, bolster cybersecurity measures that protect sensitive data, or implement automation tools that boost productivity. This access to cutting-edge solutions can give your small business a competitive advantage that was once reserved for larger enterprises.

Smiling small business owner on the phone - Why Small Businesses Should Embrace Remote IT Support

Scalability and Flexibility

As your small business evolves, your IT needs will inevitably shift. Remote IT support offers the agility to adapt seamlessly to these changes. Need more comprehensive security after expanding into e-commerce? No problem. Your remote provider can easily enhance your defenses. Experiencing rapid growth and need additional help desk support? They've got you covered.

For instance, a startup might begin with a basic package that includes network monitoring and software troubleshooting. As they grow and expand their online presence, they might upgrade to a plan that offers website maintenance and enhanced security measures. A brick-and-mortar retailer, on the other hand, might require a focus on point-of-sale system support and on-site troubleshooting visits.

This flexibility ensures that you're never paying for services you don't need, and you can easily adjust your level of support as your business landscape changes. This adaptability can be a significant advantage for small businesses, allowing them to allocate resources efficiently and maximize their return on investment.

Cost-Effectiveness

When it comes to IT support, cost is often a major concern for small businesses. Remote IT support offers a compelling financial advantage over traditional in-house solutions. Let's break down the key cost differences:

  • Personnel: Hiring and maintaining an in-house IT team involves salaries, benefits, training, and potential turnover costs. Remote IT support eliminates these expenses, replacing them with predictable monthly or annual fees.
  • Infrastructure: In-house IT requires physical office space, dedicated hardware, and software licenses. Remote IT support providers handle these aspects themselves, significantly reducing your overhead costs.
  • Emergency Situations: Unexpected IT issues can lead to costly downtime. Remote IT support often offers faster response times than in-house teams, potentially saving you thousands in lost productivity and revenue.

Let's look at a practical example. A small business might pay a remote IT provider a monthly fee that covers comprehensive support, including regular maintenance, troubleshooting, and emergency response. This fee would likely be significantly lower than the combined cost of salaries, benefits, and infrastructure for a full-time IT employee.

Wrapping Up

Remote IT support isn't just a trend; it's a strategic tool that empowers you to level the playing field, compete with larger enterprises, and focus on what you do best: growing your business. So, if you're ready to harness the power of technology without the burden of managing it yourself, it's time to explore the world of remote IT support. Your business—and your peace of mind—will thank you.


NCFA Jan 2018 resize - Why Small Businesses Should Embrace Remote IT SupportThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Can Fintechs Win in a High-Interest Rate World?

Economy | Jun 4, 2024

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Can Fintechs Thrive Amidst Rising Rates? Exploring Challenges & New Opportunities

The well-known neobank in the United Kingdom, Monzo, just revealed its first-ever full year profit in 2023 (year end March) £15.4 million as reported in Sifted against the backdrop of rising interest rates, which begs the question 'how profitable fintech companies will be overall in this new climate'?

Higher interest rates can boost revenues of lending-focused fintech models since they can charge more for loans.  However, fintechs that primarily focus on deposit accounts may find the current environment challenging.  Not all fintechs can always keep up with these changes, even while some challenger banks are renowned for providing competitive—or even higher—rates on savings accounts like EQ Bank when compared to traditional banks. For those fintechs that are unable to provide competitive interest on deposits, this may result in a loss of customers.

See:  Michael Katchen: Redefining Mortgage Accessibility

Monzo's business strategy is multifaceted and offers loans including a buy-now-pay-later product, as well as debit cards and current accounts, and overall revenues grew to £880 million in 2023, which was more than double the year prior.

Fintechs that concentrate on payments may experience less impact, whereas wealth management platforms may see a rise in investment activity. However, growing borrowing rates may put pressure on some lending-focused fintechs, particularly those that specialize in personal loans.

Managing Credit Risk

Lending-focused fintechs and challenger banks like Monzo, must prepare for higher default rates in a climate of high interest rates, similar to traditional banks. This is because:

  • Borrowing money becomes more expensive when interest rates climb. Borrowers may find it difficult to repay their debts as a result, which could lead to defaults.

See:  Credit Reference Agencies Are Coming For Your Data

  • When the economy is uncertain, some borrowers borrow more than they can afford, particularly if they think that rising interest rates will increase their future profits. If those expectations are not fulfilled, this may raise the likelihood of defaults.
  • Some fintechs may feel pressured to relax their lending criteria in an effort to draw in more new borrowers as the competition heats up in an environment of high interest rates. This might result in lending money to borrowers who pose a greater risk, which would raise the chance of defaults.

Ways Fintechs can manage the risk of greater defaults in a higher interest rate environment

  • Fintechs can reduce the risk of defaults by closely evaluating their credit underwriting process to ensure suitable creditworthiness and financial history of borrowers.
  • Fintechs can help avoid defaults by closely monitoring loan performance and proactively reaching out to borrowers who are having difficulties with options.
  • One way to lessen the financial impact of defaults is to set aside reserves to cover potential loan losses.
  • Increasing the Variety of Loan Products: Divvying up the risk among other loan categories, such home loans, personal loans, and business loans, can lessen the impact of defaults in any one area.

Be Adaptable While Putting Customers First

  • The environment of high interest rates presents opportunities as well as challenges for the fintech sector. If fintech companies can adapt their business plans to capitalize on their unique advantages, and prioritize client needs, they have a good chance of succeeding.

See:  Navigating Fintech’s Future Amid Economic Challenges

  • Fintechs can enter niche markets where traditional banks are not be as competitive, such as microlending to underbanked populations or providing alternative investment options to clients seeking higher returns.
  • Fintech businesses are well known for their flexibility and ability to create innovative financial products. With this advantage, businesses can develop solutions that are appropriate for the current high interest rate market, such as robo-advisor platforms that automatically adjust investment plans in response to fluctuating interest rates or peer-to-peer lending platforms that provide lenders and borrowers competitive rates.

Conclusion

By prioritizing customer needs, remaining adaptable, and managing credit risk, fintechs can continue to drive innovative and inclusive financial products in the current high interest rate landscape.


NCFA Jan 2018 resize - Can Fintechs Win in a High-Interest Rate World?The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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Credit Reference Agencies Are Coming For Your Data

Data Insights | Jun 3, 2024

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Credit Reference Agencies Are Monetizing Data Services Beyond Credit Reporting

Consumer credit information is gathered and maintained by credit reference agencies (CRAs) such as major players TransUnion, Experian, and Equifax. To generate credit reports, they gather information from multiple sources, such as financial institutions, public records, and direct customer input. Lenders, insurers, employers, and other organizations can use these reports to evaluate a person's creditworthiness, risk profile, and financial history.

See:  2023 Data Privacy in North America – Year in Review

The gathering and reporting of credit information is still the primary duty of CRAs. Nonetheless, their operations now cover a far wider ground. The focus on marketing services and data analytics represents a change from just giving credit scores to delivering all-inclusive data solutions. The application of cutting-edge technologies and the growing importance of data insights differentiate modern credit reporting methods from traditional approaches.  In order to more precisely target customers, data marketing services make use of the enormous amount of data that is gathered by CRAs and other sources. To segment markets, forecast consumer behaviour, and customize marketing campaigns, they examine and make use of this data.

Trends and Insights

1.  Credit reporting agencies (CRAs) now offer data marketing and advanced analytic services, which goes well beyond standard credit reporting. This development is in line with a larger trend in data monetization, which uses customer data to create new sources of income.

2.  CRAs' prediction power has been greatly increased by the combination of artificial intelligence (AI) and machine learning (ML). Personalized marketing plans and more precise risk evaluations are made possible by these technologies.

3.  People are becoming more conscious of the ways in which their personal information is gathered, utilized, and sold. Calls for increased transparency and control over personal data are heightened by privacy concerns.

4.  To address these growing privacy gaps, regulatory frameworks are changing. Stricter guidelines on data collection and use are imposed by laws such as the California Consumer Privacy Act (CCPA) in the US and the General Data Protection Regulation (GDPR) in Europe.

See: 

Insurance Industry Sitting on Treasure Trove of Big Data, As Regulators Wrestle Data Privacy

Primer on Quebec’s New Data Portability Law

Which Way Are These Businesses Heading?

  • CRAs will likely continue extending their services into new markets and developing nations, providing solutions that are specifically suited to the demands and legal frameworks of those regions.
  • Businesses are spending money on platforms that provide customers greater control over their data and improved access to their credit information. This includes individualized financial guidance and instructional materials.
  • CRAs are now able to incorporate their data solutions into cutting-edge financial products and services because of growing partnerships with financial technology firms.

What Could Go Wrong?

  • Customers may experience incorrect credit denials or increased interest rates as a result of inaccurate or out-of-date information.
  • Consumer trust can be severely damaged by major privacy violations resulting from unauthorized access to or exploitation of consumer data.
  • Serious fines and legal ramifications may arise from non-compliance and disregarding the constantly changing data protection standards.

Regulation

Regulators globally are examining CRAs and their data marketing services more closely, and are continually adapting privacy rules to protection participants, such as (to name just a few):

See:  Protecting Financial Privacy in the Digital Age: Crafting a Stronger Framework

The objectives of these legislation are to safeguard customer privacy, regulate data veracity, and establish interoperable standards. For companies to remain compliant and preserve customer confidence, they need to stay on top of regulatory developments.

Closing Outlook

Innovation is a bit like water, such that it will always find a way to trickle down. As more data is amassed and integrated with advanced analytics, AI, and ML, more sophisticated products that improve credit scoring, risk assessment, and individualized financial services will ultimately create a more agile and responsive financial ecosystem.  There will be significant opportunities for fintechs to compete directly with CRAs or establish varied partnerships.

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Consumers will have improved access to their financial information, allowing them to make better decisions and receive tailored financial guidance.  Increased transparency and data accuracy can lead to more equitable credit evaluations, however there are privacy concerns and risk of data breaches which requires balanced privacy protections and regulatory monitoring. The future of CRAs must strike the balance between innovation and ethical data practices.  The successful integration of CRAs into the fintech ecosystem can drive financial inclusion and spur innovation.


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