Who needs banks? How tech companies are taking a bite out of financial services

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Financial Post | James McLeod | Aug 21, 2020

Frictionless experience - Who needs banks? How tech companies are taking a bite out of financial servicesTech companies moving to create 'frictionless' experience so small businesses can get access to money quickly

In early August, Montreal-based Lightspeed POS Inc. announced it would start offering loans of up to US$50,000 per retail location to merchants in the United States that already use its point-of-sale software.  In the announcement, Lightspeed said merchants will, in most cases, get the funds deposited into their account one day after applying.  The company’s customers tend to be mid-sized retailers such as jewelry stores and sporting goods retailers, not the big national chains, but bigger than an independent storefront.

Chief executive Dax Dasilva said such financing might be particularly good for buying inventory, or for launching a new marketing campaign, but he also expects that the speed of the loans could open up new opportunities that merchants haven’t been able to take advantage of before.

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“Let’s say you wanted to bring in a couple pallets of inventory that you knew would be successful, but the hassle of getting a small loan from the bank, all of that, maybe it’s something you don’t end up doing,” Dasilva said in an interview.

There’s a lot of buzz in the technology world about financial services. Apple Inc. now has a credit card that tightly integrates with an iPhone app, and its Apple Pay product.  Uber Technologies Inc. issues a Visa debit card to drivers that is tied to a chequing account. Facebook Inc. has even tried to create its own money in the form of the Libra cryptocurrency.

"It’s very possible, that Every Company Will Be a Fintech Company," as Angela Strange, a general partner at the influential Silicon Valley venture-capital firm Andreessen Horowitz, headlined her blog post in January,

For one thing, it’s another line of revenue for the technology companies. In its most recent quarter, the company’s subscription revenue was US$196 million, but it took in another US$518 million from “merchant solutions,” which is mostly fees for payment processing and loans to merchants through the Shopify Capital lending product.

“Big companies don’t have problems with banking today, because banks are designed to serve big companies. But small companies do have problems: they can’t get access to money.”

Earlier this year, Shopify expanded its lending program to Canada and the United Kingdom, after introducing it in the United States in 2016.  Shopify also offers a payment card to merchants, and the company makes a point-of-sale kit including a card reader.  But Nejatian said Shopify isn’t trying to become a bank for merchants; it’s just trying to figure out all the services that a merchant needs to succeed.

“I think if all we do here is replicate a bank, we’ve failed miserably. That’s not the goal,” he said. “My goal is to help create the next million entrepreneurs and make it easier for them to launch, grow and succeed in running their business. Some of those things will be financial services, some of them won’t be.”

See:  Is this the new face of Generation Z banking?

Wealthsimple is one company trying to build a competitor to the traditional banks.

“What you see a lot of companies trying to do — and we’re no different — is owning the client experience and deepening the client experience in all sorts of ways over time by removing friction,” he said.

“The banks are giant companies that have huge install bases of a lot of clients that aren’t going to go anywhere,” he said. “It’s a generational change. Banks have an opportunity to make those investments now. It’s not going to be easy, but it’s also going to require rethinking their business model, rethinking the way they make products.”

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