For fintech businesses, the use of open networks is one of the foremost advantages of the sector. It differentiates product offerings from competitors and allows market-leading technology to be leveraged. However, this same system exposes these businesses to a litany of risks in a sector that does not assume the same regulated transparency, compliance, or risk reduction policies that lenders or banks are subject to. Now is the time to make strategic moves and utilise risk management and prediction tools to mitigate any credit risk to your fintech business.  

How to keep on top of your decentralised customer base          

Open networks and Decentralised Finance, or DeFi systems, are rapidly evolving, bringing customers innovative ways to store and invest their cash, including peer-to-peer lending, digital banks, neobanks, and cryptocurrency solutions.   

The industry has seen monumental growth in recent years, particularly following the COVID-19 pandemic incentivising customers to move towards digital, contactless solutions to their financial needs. According to EY data, Australia now has approximately 850 active fintechs, earning $4 billion in revenue a year between them. These automated processes and networks allow for transactions to be made without the need for intermediation or a centralised organisation. 

Unfortunately, for many fintechs – particularly those that exist on public blockchain networks – with swift growth comes delayed regulation and transparency about potential risks. DeFi protocols currently operate with significantly limited government oversight and regulation when compared to traditional banks and lenders. If this were to change, it’s nevertheless hard to predict exactly how it might impact the sector and client investments. 

This lack of clarity results in significant additional pressure on fintechs to accurately mitigate credit risk, and assess client financial viability. Time-tested methods to evaluate and assess a client, trading partner, or supplier’s creditworthiness can feel outdated when you don’t yet know what new risks, or warning signs, to avoid in this rapidly evolving industry. Many fintechs, as a result, may find it challenging to stay informed of their customer’s payment behaviour, as well as evaluate the risk profile of potential new debtors.    

This is where automated software, like DebtorLogic from CreditorWatch, proves its value – acting as a silver bullet for debtor management, and credit risk assessment, in the ever-changing fintech industry.  

Understand your customers with DebtorLogic 

DebtorLogic is an interactive trade program, which provides fintechs with a comprehensive data-driven analysis of their entire Aged Trial Balance (ATB), identifying customer and supplier payment trends to assess the likelihood your business will receive payment. 

This tool allows businesses to more easily determine the creditworthiness of their partners, standardise any debt collection, and arm the team with knowledge of the payment behaviour of clients – in an industry with little transparency. DebtorLogic ultimately helps you minimise bad debt, and reduce Days Sales Outstanding (DSO), by immediately identifying and flagging deteriorating payment behaviour.  

Automated software, like DebtorLogic, allows businesses to leverage a massive variety of datasets to analyse customer and supplier payment trends across the market. You’ll be able to: 

• Identify high-risk debtors – Easily determine your best and worst customers, and swiftly adjust your payment terms if any warning signs are shown. 
• Understand payment trends – Discover how your business is being paid in comparison to other fintechs, or which customers are likely withholding payments. Receive immediate alerts if changes occur to your client base, such as default listings. 
• Get paid faster – Improve the collection rate of your portfolio by prioritising payments from riskier clients. 

DebtorLogic helps fintechs accurately profile each customer for potential risks and can do so at scale – making it perfect for businesses, like yours, that work with large amounts of data. You’ll gain access to machine-learning predictive technology, such as CreditorWatch’s RiskScore, which calculates a numerical score for each client between 0-850, based on their likelihood of default in the next 12 months. 

In an industry that is challenging to predict, and fraught with risk, the ability to leverage comprehensive data on client payment behaviour for risk management may be extremely helpful. Without a traditional regulatory framework in place to prevent credit risk, fintechs must take it into their own hands, and take a proactive approach to mitigate the risk of poor payment behaviour of clients. 

Even for brick-and-mortar banks, there’s no guarantee that entities they engage with will not experience default risk, even if the bank has a lengthy relationship with said entity. This risk is understandably higher for fintechs operating in open networks and DeFi systems. Do the due diligence in reducing the risk exposure to a fintech business through the use of intelligent and comprehensive tools such as DebtorLogic.  

Discover how you can better understand your customer base and identify high-risk debtors with CreditorWatch. Book your free trial of DebtorLogic today.