NMI Dives into Embedded Lending for Small Businesses
Business payment processor NMI has launched NMI Business Capital, a new embedded lending product designed to support small businesses. This development comes in response to the increasing demand for integrated financial services from small-to-medium-sized businesses (SMBs). By providing faster access to short-term capital, NMI aims to strengthen and expand its relationships with its SMB clients.
What’s at Stake?
According to research by S&P Global 451, approximately 69% of SMBs want their technology partners to offer integrated financial services. This desire is fueled by the cash-flow challenges that most small businesses face. Rapid loan approvals offered by payment firms using transaction data can help to alleviate these challenges, presenting an attractive alternative to traditional banking services.
However, NMI is not alone in this space. Many payment firms that target small businesses, such as PayPal, Stripe, and Block, also offer similar lending services. Despite the competition, NMI’s Chief Growth Officer, Peter Galvin, remains confident in NMI’s ability to stand out due to its established relationships with clients and access to data that allows faster lending.
Understanding NMI’s Loans
NMI has been branching out beyond its core payment technology, offering more merchant products in an effort to cater to the trend of small businesses consolidating outsourcing partners. Annually, the company processes approximately $440 billion in payments through its white-label platform, which boasts about 4,000 distribution partners. In partnership with Utah-based Celtic Bank and technology firm Parafin, NMI will approve and issue NMI Business Capital Loans.
However, scaling the product will not be without its challenges. As Aaron McPherson, a principal at AFM Consulting, pointed out, NMI and Parafin must compete without the data provided by a full-service merchant processing platform. That being said, he also recognized the potential for NMI to find its niche with ISOs and payment facilitators lacking lending capabilities.
Software Platforms as an Alternative to Traditional Banks
There is increasing pressure for small business technology firms to diversify their offerings. As Jordan McKee, Research Director at S&P Global Market Intelligence 451 Research, noted, software platforms have become operating systems for SMBs, providing a single control center to manage every aspect of their business. This has created an expectation for software packages to have payments and financial services like lending embedded within them.
Payment software platforms are in an ideal position to offer embedded lending due to their deep integration with businesses’ operations. With insights into sales performance, customer demand patterns, and other business metrics, they can offer targeted lending at the precise moment of need and simplify repayment by collecting a percentage of sales. As such, NMI’s move into embedded lending is a further commitment to embedded finance and highlights the opportunity for software platforms to own more of their small business customers’ banking needs.
For instance, a small plumbing business facing an unexpected truck repair could take advantage of this service to bypass the time-consuming process of applying for a traditional loan. This could prevent the business from having to resort to credit card debt to cover the cost.
However, the success of embedded lending hinges on visibility. According to Richard Crone, a payments consultant, embedded lenders can only succeed if they’re present at the moment merchants settle the day’s sales. With this in mind, NMI faces the challenge of not only distributing its new product but also ensuring its visibility to its target audience.
In conclusion, NMI’s bold move into embedded lending signals a shift in the financial services landscape for small businesses. By providing quick and convenient access to short-term capital, NMI and similar firms are challenging traditional banking models and reshaping how SMBs manage their finances.
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