Fiserv sees existing credit lines as cure for PPP limitations

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The race to provide coronavirus relief for small businesses is opening new routes to fund payments, including underused credit lines.

Fiserv is allowing cardholders to access credit lines without an additional application, adjudication or origination fees. The idea is these businesses can then use these funds to make recurring payments that usually don’t get made with credit cards, such as rent, mortgages, procurement or other recurring transactions. The product is aimed at all users but the main focus is smaller financial institutions and small businesses, both of which are hurting during the pandemic.

The product is the latest in a series of moves by bank technology firms, fintechs and merchant acquirers to repurpose core products for the crisis, hoping to keep clients whole while retaining revenue for the long term.

Square Capital, PayPal and other payment companies and fintechs were approved to take part in the Paycheck Protection Program, which is designed to provide emergency capital to small businesses while retaining staff.

Stripe’s play is to use a new $600 million investment to build a suite of small-business services to attract merchants that are migrating to digital for the first time because of shutdowns. Other technology firms such as Veem are repurposing existing payment gateways to ease access to Small Business Administration loans.

Fiserv is taking a different tack, contending there’s more flexibility in its program to support or fund payments that may be harder to execute through the PPP, which requires the money be used primarily for payroll to maintain employment levels. Fiserv contends businesses may need more capital or flexibility than that.

“If you can use PPP for payroll and rent, then you can use" Fiserv’s product for purchases or supplies, said Raju Mudunuri, director of product strategy for card services at Fiserv.

The Paycheck Protection Program has been beset with challenges for small businesses. Less than 40% of small businesses that applied were approved during the first phase of loans, and about 56% of those companies received funding.

Small businesses, particularly restaurants, have also reported difficulty in distributing the funds and what expenses can be covered, leading to changes in PPP this week that are designed to make it more flexible.

Fiserv says it’s found an underutilized source of money that can fill some of these gaps. The company’s internal research reports 72% of consumer credit lines are unused, averaging $4,000 per account; and 83% of small-business owners credit lines are unused, or about $15,000 per account.

Under Fiserv’s program, called FlexLine Advance, financial institutions can define up to three lending options, including interest rates and payment periods. The cardholders use online account management to select a plan, loan amount and account to send the funds through ACH transfer. Upon fulfillment of the request, the funds will be deposited in the checking/savings account in 2 business days.

Fintech small-business lending programs from firms such as Square and PayPal rely on future payment flows to pay down loans, using past performance as an indicator of future financial health — though the virus has also complicated that model for offline businecesses.

Fiserv is not using that model specifically, but there is an element of the past as prologue. Many of the businesses are already clients of Fiserv or the company’s client banks, creating an existing relationship and data stream that allow for faster approval for new capital. Additionally, the lines of credit have already been approved, leaving only the traditional steps to access the line of credit that are being streamlined, Mudunuri said.

“The financial institutions have already looked at the performance of these small businesses and already know what their cash flow is,” Mudunuri said. “There’s also a digital element to this, where the businesses don’t have to go to a branch or an ATM, so the process can be contactless."

The product is another example of how a large existing bank technology company such as Fiserv can use acquired payment technology to bridge card issuance and merchant services. Fiserv gained First Data’s merchant acquiring and payment technology through its 2019 transaction, one of several such deals in the payments industry. Fiserv has already benefited from First Data’s digital payments technology to manage a recent spike in digital payments, while FIS has used its 2019 combination with Worldpay to update incentive marketing to accommodate shifts in spending, among other initiatives to bolster digital payments for merchants.

“We’re focused on the small to midsized market now with FlexLine, though we can use our work with First Data to scale that up for larger users,” Mudunuri said.

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