Will Tumulty, CEO of Rapid Finance, shares how embedded finance and modern tech are transforming SMB lending for community institutions.
Will, you’ve led Rapid Finance through a period of significant innovation—how has your leadership journey shaped your perspective on the intersection of fintech and small business growth?
Small businesses (SMB) are the fabric of local communities and a boon to the broader U.S. economy. Despite holding such an important space in the country, what we’ve seen in our years of providing financing to small businesses is that they often struggle to acquire the vital capital they need to keep their doors open or expand operations. As a result, fintechs have stepped in to fill a much-needed role by offering community financial institutions (FI) a way to deliver capital quickly and responsibly to their SMB clients and with the introduction of modern AI-based tools, small business owners are gaining access to funding much faster.
In what ways is embedded finance reshaping how regional and community institutions approach small business lending today?
Small business owners want experiences that mirror the frictionless service they receive from consumer and fintech platforms. Embedded finance meets this demand by enabling regional and community institutions to modernize their offerings without having to shoulder the full burden of credit risk, infrastructure or servicing. Instead, FIs can deploy white-labeled SMB lending solutions into their existing digital banking platforms to offer a seamless SMB lending experience with lower operational costs and reduced risk. SMBs can directly apply within an institution’s digital banking platform, creating a fast and convenient option for businesses to access vital capital. Ultimately, embedded finance simplifies the borrowing process.
What factors have historically limited smaller financial institutions from actively participating in the $1.7 trillion SMB lending space?
Apprehension toward SMB lending typically stems from a mix of high operational costs and risk exposure. Traditional lending processes tend to be slow, overly complex and exclusionary toward SMBs due to rigid credit and underwriting parameters.
Beyond cost and risk, many smaller institutions often have outdated systems and siloed customer data, hindering their ability to scale SMB lending programs. Additionally, relying on manual decisioning processes and fragmented data also prevents institutions from effectively assessing borrower risk or offering speedy approvals. In most cases, it’s not that smaller institutions don’t want to serve SMBs, but rather they lack the capabilities and infrastructure to participate in a meaningful way.
How does the embedded finance model alleviate operational strain for these institutions while still allowing them to serve the needs of local businesses?
Embedded finance is appealing to financial institutions because it allows banks and credit unions to offer SMB loans without having to manage the full lending process themselves. FIs can fully harness their existing data and integrate third-party risk models, reducing operational strain while expanding their ability to meet SMB financing demands.
What role does technology play in enabling a more efficient and lower-risk approach to small business financing?
Utilization of (or lack of) the right technology can either make or break an institution’s small business lending program. With so many third-party vendors in today’s market, it’s vital for community banks and credit unions to deploy technology like AI-powered credit models and automated KYC and KYB checks that allows for smarter and safer lending decisions.
Intelligent use of modern technology can significantly improve an FI’s portfolio performance, enhance the borrower experience and identify risks early in the loan process. All of these benefits factor into reducing costs and improving lending confidence.
From a risk-sharing standpoint, how can financial institutions collaborate with platforms like Rapid Finance without taking on full credit exposure?
Financial institutions can collaborate with similar platforms through referral-based or embedded partnerships where the third-party vendor assumes responsibility for most aspects of the loan life cycle. This approach enables institutions to expand their SMB lending offerings without holding the loans on their balance sheets or taking on credit risk.
How do you ensure the embedded lending infrastructure meets both the compliance standards of financial institutions and the expectations of SMB borrowers?
This is a balancing act for FIs of any size. To ensure embedded solutions are aligned with compliance standards, institutions can integrate advanced KYC/KYB tools, secure data infrastructure and real-time monitoring capabilities. Regardless of the embedded financing solution an FI chooses, the priority should be delivering a digital experience that meets SMB borrower expectations for a fast application process, quick decisioning and transparency.
In your view, what distinguishes a scalable embedded lending solution from a short-term integration?
A scalable embedded lending solution addresses the operational roadblocks that limit FIs from growing their SMB lending programs. Unlike short-term integrations that often rely on manual processes and fragmented systems, scalable solutions use data-driven automation and risk models to reduce origination costs while mitigating risk and enhancing the borrower experience.
As digital transformation accelerates, what should community institutions prioritize to remain competitive in small business finance?
Maintaining a competitive edge in the current SMB lending market can be tricky. Large banks are still the dominant players in the space, but there are opportunities for smaller institutions to punch above their weight class. Partnering with trusted fintech providers gives smaller FIs a way to provide SMB borrowers with a seamless fully digital lending experience that matches or surpasses fintech and large bank offerings.
What trends are you tracking that will likely influence the future of embedded finance and SMB lending over the next three to five years?
Uncertainty will remain constant over the next few years as economic disruptions continue to impact the SMB lending landscape. Small businesses will look to banks and credit unions that provide the tools and services they need to stay afloat and foster growth. FIs will need flexible solutions that support a mix of risk management and borrower engagement.
Partnering with a trusted technology provider that also offers embedded financing solutions can help FIs boost the profitability of their business banking programs through additional sources of non-interest income.
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