Fintech, short for ‘Financial Technology,’ was only added to the Merriam-Webster dictionary in 2018. In that short amount of time fintech has streamlined and simplified common financial processes, spreading to countless industries and all corners of the globe.

Some of fintech’s important innovations include enabling instant international transfers and offering fast, easy access to short and long-term loans. This lack of regulation means quicker, less convoluted processes and more control in the hands of businesses and individuals. This streamlined process often results in greater credit risk to the fintech company.

In this article, we’ll outline some of the risks involved and share strategies to help you protect your business while enjoying the benefits of the fintech explosion.

What is Fintech?

Fintech is an umbrella term covering any number of technologies that help businesses, institutions, and individuals to better manage financial processes. This includes integrated financial and data management systems, the technology used by banks and traders to facilitate instant money transfers, and AI-powered services like robo-advising and digital lending.

Fintech also covers tools that allow individuals and businesses to independently perform transactions that would usually require approval from a financial institution, like getting a personal loan. Another major area of the fintech field is the ever-expanding cryptocurrency and blockchain marketplace.

Credit risk challenges for fintechs

Fintech’s use of automated processes, open networks, and decentralised financial systems means that lots of transactions can be made without the involvement of intermediaries and centralised organisations. This gives you, the account holder, greater control over your funds and allows you to respond to market forces with speed and agility.

But all that extra freedom comes with a catch. Operating outside of conventional systems with minimal official oversight means you have to account for a lack of financial controls. One example of these would be the checks and balances banks perform before authorising a large transfer – exactly the kind of pesky red tape the fintech industry is eager to sidestep. As a result, many fintech platforms and processes are subject to increased credit risk.

The risk-benefit ratio of fintech

Extending credit without any assurance of your debtor’s trustworthiness or financial viability is a sure fire way to drive your business into bankruptcy. By the same token, no company ever succeeded by avoiding risk altogether. So, are the risks of fintech worth the potential benefits?

The fintech industry is quickly gaining mainstream acceptance. In 2021, investments in the global fintech industry totalled $121.5 billion USD; all the world’s major banks rely on the latest fintech innovations to perform countless tasks and transactions with efficiency and accuracy; even some world governments are moving to legalise the use of cryptocurrencies like Bitcoin for everyday transactions. None of this would be happening if there weren’t substantial benefits to balance out the risks.

How fintechs can mitigate credit risk

The key to succeeding in volatile markets is to take calculated risks based on reliable information and expert analysis. The problem with many fintech tools and businesses is that, while they might be highly innovative, they don’t have access to the kinds of information or resources that allow traditional financial institutions to reliably calculate and avoid risk.

CreditorWatch offers a suite of AI-supported fintech tools that take the place of the checks and balances used in traditional systems. As Australia’s largest commercial credit bureau, we draw information from a customer base of over 55,000 registered businesses and over 11 million tradelines, helping you navigate fintech spaces without taking on unacceptable risk.

Our unique, extensive database is constantly being updated, with real-time reporting to provide accurate insights into the financial health of markets and companies across the country. By pairing fintech innovation with Australia’s largest commercial credit database, we give businesses the competitive advantage they need to make strategic decisions in unpredictable markets.

Fintech tools for different stages of the debt journey

CreditorWatch helps you assess and mitigate credit risk at every stage of the debt journey, from the onboarding process to proactive debtor management and ongoing financial health checks.

At the onboarding stage, ApplyEasy eliminates the paper credit application process in favour of a simple online form. This cuts down on administrative time, allowing you to perform credit checks with efficiency and accuracy and eliminate high-risk customers at the gate. You can even choose to automate the entire onboarding process.

RiskScore, a commercial credit risk calculator developed over 10 years, assigns companies a numerical score based on their creditworthiness. With a high degree of accuracy, this innovative tool predicts the likelihood of that business defaulting in the next 12 months. Powered by advanced algorithms, RiskScore draws from our extensive database to provide an in-depth credit report and credit score check you can rely on to make informed, intelligent decisions.

DebtorLogic is an advanced trade program that lets you track and manage your portfolio over time with data-driven analysis of your Aged Trial Balance (ATB). By comparing debtors across states and industries, DebtorLogic alerts you to high-risk debtors early on so you can stay ahead of bad debt.

All of our tools are designed to expedite the credit check process without compromising accuracy. Our systems can be easily integrated with your existing MYOB or Xero accounts, keeping all the important information in one place so you don’t need to spend time transferring data between disparate systems.

Your Future in Fintech 

New opportunities are emerging in the fintech space all the time; those who benefit from them will demonstrate a willingness to take risks paired with the tools and business acumen needed to manage those risks effectively. Contact CreditorWatch today to find out how we can give your fintech business the advantage.