FintekNews is pleased to offer the 12th installment of our weekly feature column “3 Questions”. Each week, we feature a thought leader within a unique sector of fintech and ask them to answer just 3 questions for our audience in their vernacular. This week we are pleased to introduce you to Stephen Sheinbaum, Founder of BizFi. Founded in 2005, Bizfi and its family of companies have provided more than $1.8 billion in financing to more than 32,000 small businesses in a wide variety of industries across the United States, combining aggregation, funding and a participation marketplace on a single platform.
How did you personally become involved in fintech?
I founded a company, Merchant Cash and Capital, in 2005 to provide short-term funding to small businesses, primarily in the restaurant industry to begin with. I had seen, in my work as a lawyer, that these businesses constantly received the cold shoulder from traditional banks. They couldn’t grow. In the decade since, we’ve given small businesses in many more industries a chance to get alternative finance. We’ve given them franchise funding, equipment financing and more.
In 2015 we rebranded as Bizfi when we launched an even better way to get more types of funding to more small businesses. Our online marketplace now gives small businesses access to everything we offered before, plus medium-term loans and accounts receivable financing, as well as long-term loans guaranteed by the U.S. Small Business Administration (SBA). And we did it without losing any of the application speed or funding speed that small business owners had come to expect from us.
What do you believe the next major innovation in financial technology will be and why?
Without a doubt, it will be in the understanding and use of unstructured data. Alternative finance companies like Bizfi are pioneering ways to efficiently and effectively mine structured data like FICO scores to qualify borrowers and gauge their ability and willingness to repay. The fintech industry has gotten a lot of mileage out of writing the right query strings around structured data.
There are many more indicators of small business creditworthiness out there, but they can’t be neatly sorted into columns on a spreadsheet. Should we be concerned when a small business owner fills out the funding application in all caps? Should we worry about repayment when they use certain adjectives and phrases when speaking with our underwriters? Variables like that are unstructured data, and we are only just beginning to explore the role they play in a healthy funding environment for small businesses. Smart financial technology companies are going to seek out partnerships with firms and individuals who can help them uncover the most meaningful unstructured data and put it to work most efficiently.
What are the biggest problems facing the fintech industry in the future?
I put regulatory uncertainty and the high cost of customer acquisition at the top of the list. The federal Consumer Finance Protection Bureau and several states are already working on regulatory initiatives, but we in the financial technology industry still don’t know what’s in and what’s out. No regulation is not an option: Regulation comes to every industry eventually, including financial technology. I have said repeatedly that properly crafted regulation at the national level will be a benefit to the leading financial technology companies because it can lead to a greater understanding of our industry and greater transparency, without the patchwork mess of state-level regulation. Make the rules clear and fair, and fintech will find new opportunities to grow.
Many companies have jumped into alternative finance and financial technology since the recession because the barriers to entry appear to be so low. But these secondary companies are discovering that, while they may be able to program an algorithm, their customer acquisition costs add up to a losing proposition. For decades and decades, traditional banks have had the benefit of a ready-made customer base: When individuals and businesses put funds on deposit, they became potential clients of the banks’ many lending activities. We all know that banks, with their legacy technology and burdensome overhead, can’t profitably lend to most small businesses. I think the solution is for fintech companies to partner with banks, developing technology to more rapidly assess a borrower’s creditworthiness and opening gateways that allow banks to easily refer clients to the finance providers that best suit them. Bizfi has done this with its white-label technology and its partnerships with small business banks, most recently through our partnership with Western Independent Bankers (WIP).
Stephen Sheinbaum founded Bizfi in 2005. Since then, Bizfi and its family of companies have provided more than $1.8 billion in financing to more than 32,000 small businesses in a wide variety of industries across the United States. Bizfi’s connected marketplace instantly provides multiple financing options and real-time pre-approvals to businesses from a wide variety of funding partners.