Fintech: Next wave of innovation to focus on B2B needs

This article first appeared in Enterprise, The Edge Malaysia Weekly, on May 14, 2018 - May 20, 2018.
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Inter-business transactions can be a headache for small and medium enterprises (SMEs) due to the extensive documentation required, not to mention the cost of transferring funds.

Financial technology (fintech) could provide the solution, says Kerry Agiasotis, managing director and executive vice-president of Sage Asia Pacific.

Payment-related fintech solutions could help drive real efficiencies in cash management and provide insights into a company’s financial health, says Agiasotis. “The very early interactions were very simple financial and documentary transactions that crossed over business and banking processes.”

Another way to increase productivity is through the utilisation of a company’s assets, he adds. “For a small business, cash is king. It is important to make sure it has full visibility of all of its liabilities and obligations and make sure it is making payments and receiving them on time. Basically, working cash is very important.”

Agiasotis says fintech is influencing this by removing the middlemen and overheads from business-to-business (B2B) financial transactions. “I think that is where you are going to see the first wave. And this is where the crossover comes into the application software companies.”

For a business to manage its resources and cash, it needs to understand exactly what its obligations are. Agiasotis says when a business is making purchases, it needs to know whom it needs to pay and by when. “Small businesses also need to have the visibility of all the cash coming in and all the invoices they are sending out. Those business transactions are recorded in the company’s core business system, which is typically an accounting system like ours.”

But the invoices and payments have not been linked in any meaningful way. So, there is no way for the business owner to tell if an invoice has been paid unless he checks his bank account.

“But once those things become connected, the business owner will no longer have to check his bank accounts to see if the invoice has been paid. This is a simple example of how efficiency is created in procurement and payment, by the connectivity between business processes and financial services,” says Agiasotis.

As the whole process gets integrated into the organisation’s core software, other opportunities are created for the company’s growth, he adds.


Alternative financing for SMEs’ growth

Traditionally, businesses reach out to banks for working capital. And despite knowing very little to nothing about the businesses, the banks determine that the individuals running them are obligated to pay off the loan and lean on their assets until they do, says Agiasotis.

“The banks say they are lending to the individuals instead of the businesses because they do not have enough confidence in the businesses due to the lack of visibility. However, these companies can get the visibility from an enterprise software,” he points out.

“If a company uses this type of software to manage invoices and payments, the health of the business becomes more visible. Historically, this data was locked up because many SMEs did not have access to this software as it was too expensive. But now, with cloud computing [which has brought down prices], it is all available to them.”

Sage offers its software through a monthly subscription and does away with the need for hardware. All the data sits in cloud servers, making it available to banks and other financial institutions.

“Due to the increased visibility, the banks would have more confidence to extend funds in a more appropriate way. Financial institutions would not have to give these companies very large facilities that they do not need, or one-off capital or asset-based loans,” says Agiasotis.

There are, however, “more liquid forms of financing”, such as trade and invoice financing, which makes it possible for fintech platforms to provide smaller amounts of capital frequently as they can recycle their capital quickly, he points out. SMEs, on the other hand, could develop future plans and source for additional funding easily.

Agiasotis cites CapitalBay, which provides an invoice financing platform for Malaysian businesses that can source capital from multiple banks that are willing to finance both suppliers and buyers based on accepted invoices. “It is more feasible for non-banks to get involved in these types of financing because the amount is discreet and short term,” he says.

On top of that, cloud computing allows service providers to be connected so that information about the companies’ transactions is available immediately. “Financial institutions can make real-time decisions,” says Agiasotis.


Time for SMEs to leverage fintech solutions

The Malaysian market is well placed to benefit from fintech innovation, starting with B2B payments, with the top six banks in the country collaborating with fintech and software companies such as Sage to automate business payment processes, according to Agiasotis.

For example, last June, Sage partnered Maybank to provide the bank’s SME customers with access to Sage One — a cloud-based accounting solution that allows them to access their accounts via mobile devices. This frees up the SMEs from having to purchase costly accounting software or worrying about the software installations, updates and training, data security and disaster recovery preparation.

“Such innovation will drive material financial benefits for all businesses, especially smaller businesses, including getting paid faster and making better use of cash flow, reducing the need for expensive short-term financing instruments and business risk,” says Agiasotis.

He adds that SMEs need to ensure that they possess the right technology platforms to enable connectivity, and the best example is cloud computing. He says studies have shown that by the end of this year, more than 80% of the Fortune 1000 companies and more than 50% of very large businesses will be in the cloud.

“There will be people who already have a technology strategy or have already made the investments to have part of their organisations open to working this way. If you think about the traditional supply chain, big businesses depend upon small businesses and vice versa. So, when a big business says, ‘This is how I want to do business’ or ‘This is how I want to make payments’, it will force small businesses to follow suit,” says Agiasotis.

The next stage is for SMEs to figure out how they can better connect with their suppliers and customers, he adds. “SMEs need to think about the areas that can be better connected with their ecosystem. Then, it is all about working in collaboration with third parties to drive new outcomes.”


AI shaping fintech trends

Agiasotis says there is a huge amount of investment going into the Internet of Things (IoT) and artificial intelligence (AI). “As you have more information, big data will drive different styles of making decisions when it comes to credit and risk management,” he adds.

This will drive financial innovation such as credit products that businesses can access as and when they are needed. Agiasotis cites dynamic financing, which utilises financial and accounting data to extend financial services as needed.

Accounting software companies will leverage AI to present data in such a way that other service providers can use it, he says. “If we can provide forecast cash flow for a business, bank or alternative lender, we could do really interesting things with that in terms of making credit decisions.”

One of the fintech players Agiasotis has been working with in cross-border trade is Waves Platform. It is an open-source blockchain platform that allows users to launch their own digital tokens.

“It is focused on getting smart contracts in the supply chain and effectively, it will eliminate a lot of overheads, especially for growing businesses. Today, over 70% of all global trade and cross-border transactions have some type of finance associated with it because of inefficiencies, particularly in counterparty risks and cash-flow management,” he says.

When the inefficiencies are removed, it would make it far more realistic for a Malaysian company to do business abroad.

Agiasotis is upbeat about how AI will change how businesses work. As commercial activities become increasingly connected, AI solutions will have access to big data to automate various processes.

“So businesses no longer have to go into a system and type in the fact that a sale has been made. They do not have to analyse a whole lot of data to tell their accountants or banking providers about their financial situation as it would already be visible. The providers may even be able to suggest a short-term loan or facility to be able to help them out,” he adds.