The New Economy speaks with Britt Lintner and Henning Holter from Tungsten to find out how tech innovations are changing the financial landscape.

The New Economy: How are technological innovations changing the finance landscape? Britt Lintner and Henning Holter from Tungsten join me now to explain.

Well Britt, if I might start with you. How is technology changing the finance industry as we know it?

Britt Lintner: Technology is changing the way we distribute and deliver. We can reach our audience in a much more efficient way: very quickly, very flexibly.

With regard to delivery, we’re able to reach a much wider audience, which you can’t do in the way we did before – one on one meetings, paper due diligence.

Henning Holter: And I think the important thing is to consider it also from the customer’s perspective. Their ability to engage with you changes. And you can do a lot more of your own research, and access to data on information and products, in a much richer vein because you have it all online, and a lot of people prefer to do it online, as opposed to showing up with hat in hand and ask the bank branch manager for a loan – that day is gone.

The New Economy: Now, there has been talk that fintech will actually replace the traditional trader: what do you make of this?

Henning Holter: Probably as a blanket statement it’s exaggerated, but I think there are some traditional lenders who will not make it, who will not get it. They are struggling, or are hampered to some extent by legacy or heritage IT systems, as well as cultural obstacles to engaging with the client.

As an industry I think what we’re seeing is probably a fragmentation with new fintech companies being established, and carving out a position for themselves specifically in the retail and SME sector. That will most likely lead to a consolidation in the industry; and I’m not sure if the banks will be the driver of that consolidation.

The New Economy: And what would you say will be the knock-on effect for small and medium sized enterprises?

Britt Lintner: Well there are more and more alternatives for funding: from crowd-sourcing, to peer-to-peer lending, to online early payment, which is what we do. These sectors have been growing by multiples of 100 percent to date: the numbers are extraordinary.

And from my own experience as a small business owner in the retail sector, obtaining access to working capital was always a huge challenge. And when I was doing that years ago, the banks weren’t as keen to lend anymore. And where we are now wasn’t as hot. The fintech companies, the online non-bank companies were nascent, we were in an embyronic state, so we didn’t have access to that capital.

So when we were dealing with big London stores, having that cash burn issue – trying to find cashflow for three months to six months – was a real stress.

Now that these new sources of funding have become available from the non-bank lenders, it’s really helped with cashflow problems for SMEs.

The New Economy: And would you say traditional bank lending is on the decline? And what’s the knock-on effect?

Britt Lintner: It’s shifting; and those that adapt will win.

The knock-on effect is that the non-bank lenders are the beneficiary of this. And as demonstrated by the Bank of England figures at the end of June, the first quarter of this year showed a small increase. The second quarter dipped, and in the last 12 months to date it dropped by 70 basis points. So I think that data reflects the knock-on effect.

The New Economy: And Henning, how do you think this will impact companies, and how can they even prepare for it?

Henning Holter: Very positive for companies, specifically smaller companies, which will have many more options as a result of this development.

The trick is for them to understand, to explore these options, and look beyond their banking relationships. Because there are a range of different products being made available to them, which had not been cost-effective before. So matching the right product with the funding requirement is very important, and is much easier now if you know where to look.

Cashflow is critical for any small business to grow the business, as we know. So if you can use an invoice financing solution – if you can flip your receivables to cash – it’s an incredibly efficient way to actually manage your cashflow. As opposed to lending for building your second factory, for which you’d have a different product.

So understanding what’s available to you is important, and not be tied to what the bank is offering you.

The New Economy: Well why do you think banks, traditional banks, aren’t adapting in this way? You say they’re not taking up this technology.

Henning Holter: A lot of them have IT systems that are not fit for purpose any more. They’re built in a different world, for a different purpose. And changing that is expensive and cumbersome. It’s a cultural shift that needs to be required. But if you think about it, the entrepreneurs coming through the ranks now are digital natives. They’re used to consuming data very differently. And they’re engaging with their business partners differently. They want it online, they want to be able to make their own decisions without having to meet somebody or call somebody. And that shift is very fundamental for a lot of lenders that don’t get that, embrace that. And fintech companies are built on that premise.

The New Economy: And looking worldwide, where would you say fintech is sort of, leading the way?

Henning Holter: It’s a generational thing – and it’s probably stronger in some countries than others. The UK is very, very advanced, as well as the Nordic and northern European countries advanced in their use and adoption of technology for transacting and interacting with companies where they buy stuff and services they buy.

But it’s also interesting: you see pockets like in Turkey for example, which is incredibly sophisticated when it comes to fintech. Online banking in Turkey is very very high.

So there are probably some analogies with mobile telephony in Africa, which actually bypassed the whole fixed-line technology, because it was just a better technology. And I think you’ll see some of the same things with fintech. It’s actually a more efficient way to bring less-developed countries into a more efficient environment when it comes to banking, and I think that’s an interesting opportunity if you’re open to that.