Fintech has stepped in where most others have failed, providing small and medium enterprises (SMEs) with the support they need to scale and create jobs, while simultaneously making funding possible for micro-enterprises that have previously been excluded by mainstream lenders.

This is according to Retail Capital CEO Karl Westvig, who says: “While government periodically makes announcements and commitments to provide relief and support for the SME sector, the lived experience of SMEs is that these promises are either devoid of an understanding of the on-the-ground reality of SMEs or they come with onerous conditions which exclude most SMEs from benefitting, while the small guys who are just starting are ignored by mainstream banks.

“Our fintech division is responsible for about 80% of the volume we disburse, and it works off our proprietary software. We believe we have developed a best-in-class solution to the problem of extending working capital advances to small and medium businesses that often have no other access to credit,” he says.

Banks are often accused of setting the bar too high with their approval criteria, says Westvig, however, he says, they are merely doing their job. “They are managing money on behalf of their clients and by the very nature of their businesses they need to ensure certain boxes are ticked. Their businesses are not necessarily designed to support small enterprises.”

Technology has allowed alternative lenders such as Retail Capital to disrupt this old model of disbursing funds to SMEs. “We use an algorithmic approach to risk, but fundamentally we try and make the product available to as many merchants as possible while still managing our risk appropriately,” he says.

Always on

One of the most attractive benefits of a fintech solution is that it is available 24/7, says Westvig. “When you consider that a business owner can interact with our platform any time of the day or night, including weekends, and the fact that it typically takes less than two minutes to sign the digital contract and less than a day for the money to reflect, it is no surprise that technology has disrupted the SME financing sector to the degree that it has,” he says.

Fintech is often credited for driving financial inclusion for the underserved, and this is also true for the SME sector. By leveraging the power of fintech, a lender can service small micro-enterprises. “The old dilemma was, ‘I am too small to access funding, but I need the funding to grow’,” explains Westvig.

“Our lower cost base allows us to service merchants earning below R30,000 a month, a segment of the market that is normally excluded by the mainstream sector, but which consists of thousands of small merchants who are just starting out on their journeys,” says Westvig, adding that it would be a great disservice to the SME sector to cut off support to these green shoots – exactly the entrepreneurs who have been feeling ignored by the government for so long.

Westvig says that if there are tens of thousands of businesses that need support, the old-fashioned people and paper-based approach that one often finds with interventions such as those touted by government are just not fit for purpose. “The point of technology is to find automated and better ways of doing something. In the case of fintech, the question was: How do we leverage the power of technology to scale rapidly to service tens of thousands of SMEs? This tall order would never have been possible with an old-fashioned people and paper-driven approach.

“It’s for this reason that we always advocate for government to modernise its systems. The scale of the task at hand to support the SME sector doesn’t just need it, it demands it,” says Westvig.