As the payments ecosystem continues to evolve and the payment facilitator model continues to hold its own in both profit and demand, a long-time customer offering once considered banks’ domain keeps making its way into the payments arena: Lending.
Several of the market leaders in the payments space have spearheaded initiatives to offer their customers the benefit of loans and financing options.
Most recently, Alipay launched a new growth strategy focused specifically on the small and micro business sector. Parent company Ant Financial verified its Alipay platform is pledging loans to help small businesses manage the challenges that come with financing their growth initiatives, according to Technode. This pledge is set to span over the next three years.
And Alipay isn’t the only one. Square and Paysafe are among the companies that have made efforts to look beyond the traditional payments model to offer financial support – including lending – for their customer base.
Even Grab – the Singapore-based ride-hailing app and payments provider – recently announced a new fintech platform and a supporting partnership with Credit Saison to form Grab Financial Services Asia. Grab Financial is slated to offer micro-financing within the Southeast Asian marketplace.
For all of these companies, the ability to offer lending services gives them a competitive edge in the financial sector, particularly when traditional loans are difficult for small businesses to obtain. And when the payments company can also offer financial services, this can be a more comprehensive option for customers.
But what about the challenges of incorporating payments and lending into a single business model? PaymentFacilitator spoke with the president of AZ Payments Group, Rick Oglesby, regarding the topic.
“Payments and lending have long been linked together,” according to Oglesby. “Payment providers are in the middle of the funds flow and they often intercede a very large percentage of their customers’ revenue. It’s like being a payroll provider, but for self-employed people.”
And this benefits the payments provider by enabling them to gain perspective on the customer’s financial position and, potentially, control the flow of their funds, he said.
As for challenges, Oglesby points out the most obvious one: “The core competencies of managing a payments business are different than managing a lending business.”
So where does the momentum to merge these two models come from?
Ultimately, “the integration of software and payments has expanded the mindshare so that the payment processor (now often a hybrid of a software vendor and a payment processor operating as a payfac) has a much stronger ability to market lending to its customers,” Oglesby said. “It also has a stronger ability to manage cross-business impacts through pre-approvals and more revenue diversity, which helps to manage risks.”
Deeper integration into the customer’s day-to-day business also strengthens the customer relationship and makes selling other products easier, he said.
Oglesby said he expects lending to expand among PF businesses. Even so, it won’t be a good fit for everyone, Oglesby said.
“PFs offering business-critical software to their customers and that have access to payment data are in the best position. Large PFs may even get into direct lending. Most, however, should look for lending partners and operate as loan distributors and originators,” he said.