Economia: The Opportunities and Risks of Fintech-Powered Alternative Finance

Kevin Vendel, outlines why accountants should be helping their SME clients to gain access to alternative finance

For accountants, helping companies manage the regulatory, tax and financial implications of fintech represents considerable opportunity. By adopting a strategic view, they can reduce cost and open up new revenue streams.

Some technologies, such as artificial intelligence and cloud computing, can drive savings for practices and their clients, while others can add to their bottom line. Having a fintech partner allows accountants to offer both options to clients.

Spotcap works with over 500 accountants across different markets, who recognise that fintech has the potential to free them up to focus on providing the services that add the most value to their practice. These accountants often express strong interest in co-financing, an arrangement where two or more banks or other lending institutions, such as fintech companies, jointly finance a project, as it enables them to give their clients access to funding that fits their business needs.

The interest is a function of the growing popularity of alternative finance. In the last two years, the volume as a whole, including unsecured online lending, peer-to-peer, crowdfunding and invoice financing, has more than doubled. Over the next year, alternative finance is likely to become even more mainstream through increased collaboration with financial service providers, and also between alternative lenders themselves – for example, funding providers with secured products working together with funding providers that offer unsecured products.

With the wider variety of options available for raising finance, small companies need a trusted adviser to provide advice and assist in sourcing the right financing solution to fit their specific business requirements and risk profile. As AI robo-advisers take over the role of comparing different financing options, accountants need to reposition themselves as consultants on the new financial services and products on offer. SMEs will need the sound analysis that accountants can provide to navigate the risks and opportunities that will arise as fintech and alternative lending become an increasingly important part of the UK’s small business economy.

Spotcap partner case studies: Managers at BDO Corporate Finance and KPMG explain their approach

Victor Verstappen, Senior Manager, Corporate and SME Finance

Why did you start offering alternative finance solutions to clients?

The European alternative finance sector is estimated to have grown 92% to £5.4bn last year. At BDO our objective is to help our clients achieve efficiency and growth, and offering alternative finance solutions supports that goal. The bottom line is that the world of finance is changing and accountants will spend more time working with a wider variety of finance providers.

What risks and opportunities do you highlight to clients when discussing alternative finance?

The advantages of alternative finance to SMEs include lower costs and speed. Updated credit assessment processes enable profit-making businesses to respond quickly to both challenges and opportunities. In minimising risk, I advise accountants to ask: Is it right for my client’s business model? Are there other relevant forms of financing to consider? What does my client plan to use the funding for? The number of alternative finance platforms available is growing rapidly. As this continues, accountants will play an important role in helping businesses understand the options and the advantages and risks associated with each.

What are common pushbacks from clients over alternative finance lending and how do you address these?

We have noticed that the overall awareness level isn’t very deep. SMEs will be familiar with the concept but won’t realise that alternative finance is a properly regulated service used by mainstream business. We encourage SMEs to explore all of their finance options. Government, the media and SMEs themselves are also sharing information on the new funding routes available, which will have an impact.

What advice do you have for accountants looking to partner with alternative finance lenders?

Alternative finance providers are enabling SMEs to do business in new ways. If accountants want to remain businesses’ most trusted advisers, they need to keep up with these developments. I would advise them to find a partner, someone with a strong track record of working with accounting firms.

How does your firm benefit from working with a fintech lender providing alternative financing?

We are able to help clients capitalise on a new path to business growth. The technology and service platform that fintech lenders bring to the table allow us to source capital for clients in-house, which has a positive impact on revenue. It also helps strengthen existing client relationships. Accounting firms will miss an opportunity if they don’t explore partnerships with fintech lenders. It’s a path to business growth regardless of your size.

Mark van Zon, Manager, Corporate Finance

What is KPMG’s approach to fintech and alternative finance?

When we saw the emergence of fintech players in countries across the world we understood that businesses would need help taking a strategic approach to the challenges and opportunities presented. To help our clients navigate the new environment and make the most of the new services and potential partnerships on offer, we use a five-step approach. We first help our clients make sense of the ecosystem; then assist in spotting the best-fitting opportunities; help in exploiting these opportunities (which range from experimenting with minimum viable products to partnering with or even acquiring promising start-ups); and we then play a role in subsequent integration and compliance matters.

What advice would you give to accountants when it comes to their fintech and alternative finance strategy?

Fintech provides an opportunity to either expand the services accountants offer, or improve the way current services are offered. As an accountant you are in a position to help your clients make the most of potential efficiencies and cost savings. I would advise you to take a trusted adviser approach and educate both existing and prospective clients on the benefits and risks involved. As we all know, this can take time to understand, which is an opening to provide a high-value advisory service to businesses and lay foundations for a strong relationship.

What risks surround alternative finance?

As the market for alternative finance matures, investor concern has been raised about loans to riskier borrowers, which could impact the reputation of the overall fintech and alternative finance industry, including the players that take on less risk. There is also the impact of interest rate rises and increased regulatory scrutiny.

How are you advising clients to make the most of the new technologies and services available to them?

Our objective is to help our clients grow and run their businesses as effectively as possible. For example, we know they don’t want to spend time on the analysis and admin related to finding funding. By partnering with the right fintech businesses we can present our clients with alternative finance solutions that fit their needs, faster and more easily. While there are potential uncertainties including mainstream adoption and regulatory risk, it certainly seems like the future for fintech and alternative finance will be a bright one.

Originally published on Economia on 8 May 2017.