I come from the world of start-ups, particularly emerging software solutions that are changing how people work. Naturally, when I was in search for a finance solution for my small business, I turned to fintech start-ups. Having used them when I was working in start-ups myself, these solutions fit our problems like a perfectly molded glove. Their innovative solutions made traditional banks seem so broken.
But do they truly meet the needs of small businesses? After taking a closer look for ourselves, exploring various finance solutions and their offerings, we are not convinced. Take a look at what we uncovered.
Small business owners require robust financial tools to efficiently manage their operations. Here are the essential solutions that should be part of every small business's financial strategy.
A reliable banking solution is fundamental. It provides a secure place for the money and facilitates transactions, payroll, and other financial activities seamlessly. You're looking for low to no fees for basic checking and savings accounts. It should seamlessly integrate with payment processing platforms like Stripe, and provide ACH and wire transfers at low costs.
Ideally, multi-user administration and oversight is available to owners can issue debit cards to company users as well as monitor for fraudulent activities.
Credit cards are indispensable for managing cash flow. They allow businesses to extend cash availability by paying vendors on net terms and spending on credit. This flexibility is crucial for maintaining liquidity especially if businesses have longer payment terms for their Accounts Receivable.
Ideally, the credit card solution allows for oversight over multiple users and allow the company to issue cards to people in the company as needed within the limits the admins provide. If there are rewards and cash backs, that is an added bonus. However, low fees, ease of management for multiple users, and good oversight are more critical.
A brokerage account that allows investing excess cash into low-risk money market funds (MMFs) can be beneficial. These funds, typically backed by government assets, offer a safe way to earn interest on idle cash. In the current environment, these low-risk, low-fee money market funds can earn ~5% annually. An example is the Vanguard fund VMRXX and VMFXX.
Note that this is an atypical offering in most business banking solutions. A comparable solution that businesses may need to consider if this solution is not available is a high-yield savings account. Some of these are matching to the returns from MMFs.
Several FinTech companies offer financial solutions tailored for businesses. Here’s an overview of some popular options and their offerings.
Brex, a neobank, has positioned itself as a standout in the fintech landscape. Their corporate credit card comes without personal guarantees, and their cards are specifically tailored for business spending, offering higher points for categories like travel and dining, and even on software subscriptions—a real advantage for tech-focused businesses.
Better yet, it has expanded into offering cash accounts with is a hybrid of checking and MMF account letting businesses seamlessly move funds between a checking account and a money market account. It has an easy to use UI for ACHs, wires, and e-checks. It also has alerts and automatics
Offerings: banking (cash management accounts), treasury management built into bank accounts. Also offers credit cards and expense management.
Mercury Bank is another darling in Silicon Valley with its name cropping up more in competion with Brex. However, as a neobank it still has a lot to do in order to grow into its vision. Most recently, it's banking partner Evolve and Synapse is going through litigation that brings into question Evolve's banking practices.
Offerings: Banking (Checking and Savings), Treasury Management (for accounts >$500K).
Ramp offers corporate cards with spend management, expense tracking, and integrations with accounting software. Ramp recently announced its $150M Series D-2, which makes it a solid option for businesses. At least, its cash coffers are stocked for the foreseeable future.
Offerings: Credit Card only.
Divvy, now part of Bill.com, stands out by offering a robust expense management platform coupled with a corporate credit card, designed to help businesses monitor, manage, and optimize their spending. As part of Bill.com, the leading AP system for small to medium sized startups, Divvy’s corporate card solution is the missing link for corporate expense management.
Offerings: Corporate credit card with budgeting and expense management tools.
Karat Financial is a credit card company this is built with influencers in mind. It takes a unique underwriting approach of looking at how many followers applicants have on different social media platforms. They think of the monetization potential of influencers. They are backed by celebrities and angel investors as opposed to institutional investors.
Offerings: Credit Card only.
Relay is a neobank that services small businesses. Their differentiation is a focus on cashflow management for small businesses that often suffer from insolvency and lack of financial oversight. Relay announced a Series B raise of $33M in May 2024.
While these FinTech start-ups offer innovative solutions, they often fall short in serving the broader small business community. Here’s why:
From a strategic standpoint, FinTech companies often design solutions that cater to venture-backed start-ups and high-growth companies. This focus makes sense as these companies face similar challenges and are better equipped to create effective solutions.
However, this approach leaves tens of millions of small businesses underserved. The primary reasons are:
Through our research and discovery process, we’ve realized that traditional financial solutions, although more cumbersome, might be a better fit for small businesses. Traditional banks and financial institutions, despite their slower adoption of technology, offer long-term stability and a range of services that can be more comprehensive.
While FinTech start-ups bring innovative and modern solutions to the table, they often fail to address the unique needs of small businesses. Small business owners should carefully evaluate their options and consider traditional financial solutions that might offer a better fit for their specific needs.
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