iZettle just announced that they have raised EUR60m in order to move into small business lending. When payment processing becomes a commodity this move makes perfectly sense, and confirms the prediction that payments should be considered a strategic platform for cross-selling other financial products.
One of the opportunities related to payments lies in data collection and analytics. By delivering mobile POS-terminals, iZettle has a competitive advantage when it comes to calculating credit worthiness of existing customers. Based on this iZettle plans to offer small sums of credit without a traditional credit check and application process. Through this approach, lenders should receive their funds within a couple of days. installments are repaid as a fraction of future card transactions made through the iZettle terminals.
SMEs are experiencing a funding gap from incumbents, and one of the main issues for SMEs has been the lack of collateral when applying for traditional loans. iZettle’s move into small business lending strengthens the trend where SMEs are seeking alternatives to banks for funding needs. iZettle’s U.S counterpart Square has been operational in data driven cash advances for more than a year through Square Capital. Marketplace lenders are also expanding their SME loan-portfolios in order to create access to capital for SMEs.
Another approach to solving the capital need for SMEs is through invoice financing, where risk is calculated based on the recipient fo the invoice and holding the invoice as collateral. Companies like MarketInvoice and Kickpay are aiming to solve this by offering up front liquidity in B2B-markets, where small companies are at risk of waiting up to 90 days to get paid.
These are just a couple of examples, but in my opinion makes it obvious that SMEs are clearly underbanked and represent a significant market opportunity for both fintech companies and banks.