Empowering Small Businesses in a Digital Age Insights from Biz2Credit’s Rohit Arora Digital Currencies

Episode Overview

Rohit Arora is the co-founder and CEO of Biz2Credit, a leading online platform that has revolutionized small business financing. Since its inception in 2007, Biz2Credit has facilitated over $8 billion in loans, leveraging big data analytics and predictive modeling to optimize cash flow for small businesses. Under Rohit’s leadership, the company has expanded its services globally, offering innovative financial solutions and tools to SMEs in the USA, UK, India, and Australia. His vision has been instrumental in positioning Biz2Credit as a trusted resource for small businesses seeking accessible funding options. Rohit’s academic background includes a Master’s in International Business from Columbia University and an engineering degree from India. This blend of technical and business education has equipped him with a unique perspective on financial technology and small business needs. Before founding Biz2Credit, he gained valuable experience in financial services, which informed his approach to creating a customer-centric lending platform. His expertise is frequently sought by major news outlets, and he has been recognized as Crain’s New York Business “Entrepreneur of the Year” in 2011.

Beyond his professional achievements, Rohit is an advocate for fitness and work-life balance. An avid badminton player, he began playing the sport at a young age with his brother, turning a pastime into a lifelong passion. He believes that fitness is a way of life and actively promotes a healthy culture within his company. Rohit’s commitment to personal well-being complements his professional endeavors, reflecting his holistic approach to leadership and life.

Episode Transcript

 Kevin Rosenquist: Hey, welcome to Paypod. Where we bring you conversations with the trailblazers shaping the future of payments and fintech. My name is Kevin Rosenquist. Thanks for listening. And this is the 400th episode of Pay Pod. We thank you for being part of our community and look forward to many more episodes of Fintech Insights. So biz two credit has been helping small businesses get financing since 2008. They pride themselves on providing opportunities for SMEs that might not be available from larger institutions. Rohit Arora and his brother founded the company because they saw the impact that small businesses have on local economies, and they wanted to help them thrive. In today’s episode, Rohit and I discuss the effects of technological changes to SMEs, as well as how alternative lenders are able to provide a more customer centric approach. Joining me now, Rohit Arora. Obviously, every company wants to make money. From what I can tell, you’re not only in this for the money you have, you seem to have a strong desire to help small businesses as well. Where does that come from?

Rohit Arora: Yeah.

Rohit Arora : I see that’s a very good question. So, you know, as a company, me and my brother, we started it 15, 16 years ago here in New York City. And being first generation immigrants into the country, you know, and living in New York, you know, we figured out that, you know, New York is actually a Mecca of small businesses and especially a very diverse range of small businesses, both in terms of kind of small businesses and ownership of small businesses.  so one thing we figured out, and this was, you know, just prior to the mortgage crisis, was that, you know, it was very easy in this country to get mortgage at that point of time, but even at that time, it was very tough to get, you know, funding for your business, which is obviously small and midsize businesses are the biggest growth engine for any economy, including us. You know, 97% of employment, you know, is generated by them. You know, 49% of the GDP is contributed by them. And you see so much diversity in small and mid-sized businesses. And this was and once the financial crisis came in in 2008, 2009, you know, the things got even much worse for, you know, businesses, you know,  I think banks were starting to blame everybody,  whether it was mortgage holders or even business owners for, you know, all the, you know, bad decisions that they, you know, did and all the poor underwriting they did.

Rohit Arora : And at that point of time, when we started the company, our vision was to create a digital platform because the first iPhone had just come out in 2007 and we and that was like a aha moment because, you know, prior to that, you know, business owners are always busy people. They’re always running. And, you know, for them sitting in front of a laptop or a computer is not a luxury. They have, you know, unlike people in the corporate job. But once the iPhone started coming in, we knew that, you know, a lot of people are gonna now look for a lot of their information through their cell phones. And they will also be able to, you know,  you know, do things that they traditionally were not able to do, you know, while on the move. So that’s when we came up with the idea of creating the best credit platform where, you know, we could. And our initial motive was to help them to, you know, get all the right information, connect them to the right lenders and also the ability to close on those, you know, funding options.

Rohit Arora : Because one thing we figured out a lot, a lot of people were promising it, but they were just, you know, transferring over the or selling the leads to third parties and then the third parties were just calling up these customers without knowing what they needed. And that was one of the biggest, you know, frustration for a lot of the business owners was that I’m time starved while I’m looking for something good. I’m not able to get it online because once I put my information online and show my intent to get access to credit, what I get is a massive number of calls from different lenders. And I’m not able to, you know, and I’m not in a better position. So what we said at that point of time, that our promise was that we’ll never sell your information to anyone. You know, we will be in the middle. We will have our own people, literally, like your relationship managers who will be, you know, working with you and the lenders. And we will help you to close the actual funding, because we know at the end of the day, your aim when you go online was not just to search for information, but also to get access to credit based on that information.

 Kevin Rosenquist: And so you mentioned it already that you founded business credit way back in 22,006. It seems like a lifetime ago at this point. You’ve seen a lot 2007.

 Kevin Rosenquist: Yeah.

Rohit Arora : Like I would say, end of 2007, early 2008, just before the crisis. Okay. Iphone came. And then obviously the business imperative and the need for a platform like this just grew manifold time once the crisis started.

 Kevin Rosenquist: Well, you’ve.

 Kevin Rosenquist: Seen a lot of ups and downs in small business in that time between, like you said, the market crash, you know, pandemic wars. There’s been a lot of hurdles in a time when the wealth gap increases more and more, and the big players continue to generate huge revenue. How do you see the overall state of small business in 2024 compared to when you started biz to credit?

Rohit Arora : So I would say small businesses have gone through a lot of,  you know, challenges over the last five, six years, starting with Covid, you know, came in, you know, a lot of them got shut down. Then the government launched a big relief program where, you know, they were scampering to get access to any kind of credit, to a point when, you know, inflation touched a record high, which again impacts small businesses more than big businesses because a lot of them are consumer facing businesses. So you cannot automate a restaurant, you cannot automate a dry cleaner or a, you know, laundry shop, you know, to a large extent. So they have seen a lot of upheaval in the last five, six years. You know, actually, I would say more disruption and upheaval than in the ten prior years. You know, obviously, 2008 to 2011 was pretty tough for them from access to credit and other growth challenges. But once the economy started recovering, then till 2019, it was a it was an okay period, you know, not like too much of changes and everything. I think last 4 or 5 years have been very rough for a lot of small businesses because things have just changed too quickly for them. And I think what has also happened is both good and bad. So the good thing that has happened is that a lot of the customers of small businesses themselves have gone more digital. So that is also forcing a lot of these businesses to go more digital. So a great example today is that typical restaurant, you know, used to have online delivery of around between 10 to 15% pre Covid. That is now 40% or 45%. You know that’s.

Rohit Arora: A lot of people.

Rohit Arora : Went that route. Yeah. People have not come back you know. So and with inflation it has not also helped because dining in has become more expensive.

 Kevin Rosenquist: Very. 

Rohit Arora : So actually we have seen that whole shift towards more online, more digital, you know, even for small businesses themselves. So what has happened is that 2 or 3 things are happening. So a lot of small businesses which were which were initially investing a lot of money in physical infrastructure, now have to invest more money in digital infrastructure, whether it’s their web presence, whether, you know, handling these orders, whether setting up the right payment solutions, you know, and their receivable, you know, has lengthened because a lot of these deliveries are happening through third party websites and delivery. You know, vehicles which are, you know, which pay them in 30 to 45 days compared to if somebody was in a restaurant, they will pay them then and there. So that has actually changed their business model to a large extent. Now they don’t have so much kitchen and, and so much of other, you know, physical paraphernalia compared to what they had. So that’s good news.  but I think that change has been very dramatic for them, including people in professional services. Again, you know, a lot of people, a lot of their employees who were working from the offices now have gone remote. So what that has done is that the need for office space has gone down, but the need for more cyber security, the need for better, you know, digital infrastructure has really gone up.

Rohit Arora : You know, actually,  travel has increased because of that also. So I think, I think that’s where we are going through a massive, you know, shift in the markets and with the advent of Gen I and some of the other, you know, these technology tools. I see that, you know, this change is going to get even more rapid, actually. So one of the things that we are doing at, at best, credit bestow has been that we have been investing massive amount of time, effort and money in digital experiences over the last 15 years. We have been one of the pioneers in doing that and what we are trying to also do for a lot of our, you know, small and mid-sized business clients is also helping them with, you know, of doing things more digitally. So a great example is when when we had started the company, you know, 20 to 30% of the people used to fill out an application fully online. They just wanted some help and everything. And over the years, with better customer experience, with better messaging to the customers, we have taken that number up to 80 to 85%. You know, we have cut down the amount of time it takes to fund them. And actually, you know, more and more customers we are trying to fund within 24 to 48 hours by,  by encouraging them to connect their bank accounts digitally, by verifying their text data quickly, by doing what we call digital site visits on their smartphones itself directly.

Rohit Arora : And we do the image reading and everything. And also at the back end, what we have done is because now we have access to more data, we have better quality data and more real time data. You know, we used to get a lot of our funding through credit funds and all that, and now we are putting and we have been able to now create this as a main Street asset class in terms that what it means is that now we get a lot of these small business loans and funding products rated by credit rating agencies, and that has opened up a lot of opportunity for insurance companies to come and invest in that. And as you know, insurance money is the cheapest and the most permanent, you know, capital, you know, out there. And in the last two years, what has also happened is because of high interest rates. We have seen failures of banks like SVB and First Republic. What that has also done is that for a lot of regional banks, who were the major drivers of small business lending, their deposit structure has turned upside down totally. So when their average cost of deposits used to be less than 2%, now it’s on an average, you know, not even taking into account the branch cost.

Rohit Arora : And everything is around 5.5% right now. So for them, you know, the whole lending piece has turned upside down compared to what it used to be earlier. And a lot of them have actually, you know, because of such high cost of money and, and very tight liquidity, you know, their appetite to lend to businesses has actually fallen, you know, actually. And less and less people now visit a branch, you know actually. So their whole, you know, stuff around the branch, you know, going through a branch network has actually suffered quite significantly over the last two years. So there what we are doing is that, you know, we are creating these digital experiences which are more secure, which are more intuitive. And then, you know, you can actually lend more money, you can have more products, you can actually, you know, give them a better optionality on pricing, term tenures, everything. And you can also match and help them with their cash flow, analytics and everything. Because they connect more of the data online. So we have this whole virtual CFO platform, which also tells the businesses how they are doing. What is the benchmark data on that? You know, how they can get better and smarter with their business finances. And this is and and now with the advent of AI and everything, you know, this will get even much smarter and much more customized for, you know, every cohort of businesses.

 Kevin Rosenquist: Yeah, I actually recently read a stat that,  small business loans.  small business loan approvals dipped at the big banks and rose at small banks and alternative lenders in 2023. And and yeah, I mean, that is do you think it’s, you know, part of it. You said that they’re not. The big banks aren’t lending as much, but are small businesses also just kind of interested in working with smaller banks and alternative lenders at the same time?

Rohit Arora : Yes, because what has happened is that what Covid also did, that Covid changed the mindset of a lot of small businesses because they were not very comfortable. A lot of them going online, you know, to get access to credit. Covid just changed that whole mindset. And for a lot of big banks, you know, they are still so married to their branch networks that they haven’t been able to change that experience to a large extent, you know. Right.  and that has been a challenge for a lot of them. And I think they are in.

Rohit Arora : A lot of large banks are in a, you know, are, are, are in a stage where they cannot do anything much till the interest rates don’t start coming down meaningfully, you know.

 Kevin Rosenquist: That’s true. Yeah.

Rohit Arora : Cost of deposits have just ballooned. You know, like they have not worked in this high interest rate environment in the last I would say 30, 35 years. So they don’t know how to even do that. And with the cost of not just branch but staff and running core banking, infrastructure, play and everything else, you know, that adds up to a lot of cost. And then, you know, their whole focus has been more on credit cards, you know, which is a retail product. So obviously in that whole, you know, shift the whole, you know, small business focus and the lending rates have dropped at at big banks. You know, for small banks, credit card is not a big part of their business. They cannot compete with large banks on that. And they are more community driven. So for them, you know, small businesses matter a lot. And for them, you know, serving them makes more sense. And especially alternative stuff. What has happened in alternative lending is that as they have been able to provide better online experience, digital experience, and then players like us, once we get our no assets rated and we have access to insurance money and all that.

Rohit Arora : So the arbitrage between the deposit rates and the and the money coming from insurance companies has shrunk to a record low because now deposits are like 7 or 8%. You know, if you take into account all the cost, insurance money is also almost the same price or even less today. So that whole competitive edge that big banks used to have with gathering massive amount of deposits in the country, and these deposits used to be extremely sticky because people had no other place to put in the money because the deposit rates are so low, you know, across the board, you know, that arbitrage has gone away. And that is something getting very interesting, you know, and that’s why we are seeing so much growth in private credit. Like I recently read a stat that, you know, this year, more than 50% of the small and midsize SMB loans will be funded by insurance companies one way or the other. Actually, already.

 Kevin Rosenquist: If you know, it’s interesting because I’m very techy and digital and all that, but I also kind of like the personal connection. I have a local insurance agent, a local financial advisor, and I bank at a community bank. You know, I’m also 45, so I, you know, do you feel that the younger generations, the millennials, the Gen Z youngins are more likely to shift to alternative lenders to neobanks and do you predict that that will continue if so.

Rohit Arora : So two things are happening. One, I think a lot of business owners still like a personal connect. But now you can provide that personal connect digitally. Also, you don’t need to be physically there because you see most of the business owners are also not going into into bank branches anymore, but they still want to. They still want to talk to somebody or chat with somebody. You know, you know, if they have a question or a problem and everything, you know, so they still want that. So I think that in a digital environment you can do very well by centralizing a lot of the operations. You know, actually at the same point of time, you can give these employees great insights and tools to do that. Also, you know, actually, so you don’t need them to be, you know, dispersed across the place and more and more the younger generation. We are seeing like, you know, even here at our company that, you know. For funding requests which are below $100,000. Now, you know, a lot of people don’t want to talk to anyone. They just want to come digitally, connect everything, want to see what options they have and then want to, you know, connect on it and then, you know, do it very quickly for bigger funding. Yes. They still want to talk to someone. They still want to have a conversation. But more and more, these smaller funding pieces are becoming more and more, you know, faceless. And also, you know, they want the digital experience. They only want to talk to someone if they have a question or they have a query, not the other way around. Mhm.

 Kevin Rosenquist: Yeah that’s a very good point. I mean and I, and I admittedly I a lot of times don’t want to talk to anybody either. But there are certain things that I do want that personal touch. Yeah.

Rohit Arora : So that’s the option we give to people that if you want to talk to somebody there, there are people available who will have all your like information and everything ready for you. But if you want to just move forward with the things that you like, then, you know, just like you can keep going on, on, on your own. So that gives a lot of choice and optionality. Also, you know.

 Kevin Rosenquist: You also have a product called biz two X, which is essentially you guys offering your technology platform to other financial institutions, correct?

 Kevin Rosenquist: What led you to branch off in that area?

Rohit Arora : So one of the things that we figured out was two things. One, we said we cannot offer every, every funding product on our own. So a great example is that, you know, there’s a very vibrant government guarantee program in this country, which is done by banks, you know. So we said, why. And, our whole philosophy has always been that if a business owner comes to us, they should get a pretty good experience, whether they are, you know, borrowing directly through us or through a third party, you know, actually. And we said, why don’t we launch something where, you know, we can also offer this the whole platform, including data analytics, including scorecards, including great customer experience to these, you know, third party, you know, lending institutions also most of them are again small to mid-sized banks because, you know, they don’t have the resources or the infrastructure to invest a lot in technology on their own and keep pace with updates and the technology all the time. And also part of our mission as part of our mission is to, you know, give the broadest range of products to our customer base, you know, so that’s what led us to do that.

Rohit Arora : And then we also figured out very quickly that, you know, embedded finance is becoming bigger and bigger. So we started doing a partnership with Paychex to offer financing within the payroll platform and using the payroll data. Also, you know, we have partnerships with, you know, Heartland Payments, which is part of Global Payments to provide, you know, embedded finance experience through payment. You know you know and stuff. So we said that now we can use this tool on both sides of the equation. We can use it for banks who want to, you know, digitize their experience, but we can also offer it to payment companies, payroll companies. We run a CPA loan portal, you know, which is used by 6000 plus CPA firms. They can plug in all their customer accounting data, everything into the platform, and then can offer access to credit. That includes products coming from Vista Credit and also coming from our bank partners. Also, you know, in a way. So the idea always was to broad base the overall, you know, the, you know, suite of products without sacrificing on the customer experience, actually. And that’s where we are seeing.

Rohit Arora : Lot of growth and a lot of opportunity now, because what is starting to happen is that, you know, banks are realizing a lot of payment companies, payroll companies, other folks are realizing that, you know, if there has to be like, you know, as a customer, they can come from anywhere, you know, even insurance companies now. And as a customer, I can come from anywhere. As a customer, I might start with an insurance product or my or.

Rohit Arora: I.

Rohit Arora : Might start with the account opening product, but when I need access to credit, then if my data is there, I can just connect it through, you know, APIs and everything very quickly and can get results. That creates such tremendous amount of goodwill in actually, you know, in the business community. And then everybody gains out of it, you know, actually and when we work with these other institutions, we also learn a lot here. You know, there are a lot of best learning practices that then we can go and implement across the board. Actually.

 Kevin Rosenquist: It seems like a fair amount of financial institutions, and even some large ones would rather outsource the platform, the technology platform, and build a proprietary one, which makes sense. I mean, you do what you do best, let the technology be handled by those who do it best. But of course, some companies want the control and the security of keeping everything in-house. Are you seeing a trend as technology continues to advance, where more of the medium to large players are outsourcing their tech.

Rohit Arora : I would say they are no more open to it than compared to earlier. Okay. And,  I think they haven’t totally gone that route still, but I think they are more open to it because they are also realizing that keeping pace with that focused approach, especially from a technology side, is getting tougher. The second thing is, a lot of these large banks thought that they could build everything in a core banking platform because, you see, they have invested billions of dollars in core banking platforms. But the biggest drawback with the core banking platform has been that it’s all branch driven. And post Covid, they have realized, like our banks have come to me and, you know, like among the top ten banks in the country, and they have invested like billions of dollars in buying other banks because they wanted a bigger branch network. And now they’re questioning it, you know, why did I buy it? You know.

 Kevin Rosenquist: That’s like a buyer’s remorse, right? Yeah.

Rohit Arora : But at the same point of time now, for them to get out of their own ways is taking them some time, because how do they justify that.

Rohit Arora: While they have.

Rohit Arora : Spent billions of dollars in this core banking, and they always thought initially for a lot of years that they can build all these layers on top of it. The problem with that is it’s so expensive to build something on top of core banking, and it’s so difficult to keep changing it because the pace at which technology is changing is so quick now actually, that until unless you don’t build it into a light architecture like today, it has to be cloud native, microservices driven everything. Because otherwise what happens is things change so quickly and you have to change part of your technology stack. If it is not built in microservices natively, then you know you will have to redo the whole stuff. It’s impossible to keep doing it all the time. Yeah. So I think that’s what they are struggling, but they’re like figuring it out. They know how to do it, what to do, because they’ve just invested so much of money in their core, you know, banking businesses. And that has been a big challenge for a lot of them. Now that, you know, how do they. And that’s where I see once the interest rate starts coming down, once the regulatory regime gets better, we will see a lot of consolidation also in the banking space because a lot of these players, you know, their cost structures have turned upside down and their ability to keep innovating is actually going down.

Rohit Arora : And the other thing what is happening is the customer is demanding a better experience. They need a better output. Like a great example is if I have an account with a bank and I want to go and apply for a mortgage today, I will still have to give them all the data. They just cannot take the information from my bank account even if I give them permission. And actually I like my expectation. If I give you permission, you should be able to see all my salary history, my transaction history, how much money I make, how much I keep in the account. And you should be able to underwrite me from that. You go to the same bank for a mortgage. They behave as this, as if they don’t know anything about my checking account or saving account. You know, in the in the same bank and in this day and age, it’s still frustrating because they still want you to upload your bank statements, your w-2s, your everything you know out there.

Rohit Arora : And then they do their own analysis and then they ask you 100 questions and everything. Now imagine a scenario where, you know, if I give you a permission, you just sync up everything, like what we do on the business lending side, and then you should be able to smoothen it out. So I think that’s a big challenge for large banks even today that, you know, how do they actually, you know, transcend that, you know, siloed data pieces that they have built over the years. And how do they get to the next level? Some of them are trying. Some of them are also starting to succeed. They are starting to say that, okay, what do I do for out of branch footprint? You know, there I don’t have the legacy systems, so can I get something done that way? Some of them are also thinking of, you know, doing deeper partnerships, you know, even on data they have and everything. But I would say still, it’s early days. I feel once interest rates start coming down and once the consolidation pressure increases on the industry, you will see bigger changes.

 Kevin Rosenquist: Yeah, yeah I would, I would guess I’ve had some guests lately who believe that decentralization is going to upend the banking world and move to a totally different and more personalized banking experience. Where do you land on that? Do you do you see decentralization changing the game, or is it more of a pipe dream?

Rohit Arora : See, what is happening in the last 2 or 3 years, one big paradigm shift? What has happened is that everybody thought that banks had the lowest cost of capital and the most permanent capital in terms of deposits. One thing people didn’t realize is that, you know, with the digitization of financial services, everything is at my fingertips. I can move all the money today, you know, through my cell phone, you know, in a matter of seconds. You know, that’s what happened in SVB and everything. So one big permanent change that is happening in the banking space is that even if the interest rates keep coming down, it’s okay. But this whole philosophy around deposits being my holy grail and, you know, that’s my cheapest cost of money and more. And the permanent money has actually gone away, actually. So this will have a lot of, you know, repercussions for the industry because once things start even coming back, you know, this, this reality is not gonna change anymore, actually. So that’s going to create more pressure on a lot of lending institutions and banks and their ability now to have customers who are like, they will have to give them better experience in terms of pricing, in terms of speed, in terms of, you know, doing other things if they want to retain the customer.

Rohit Arora : Because obviously deposits are liabilities and lending is our assets at the end of the day. And then with all this private credit money, especially insurance money starting to come in, you know, this is going to change the ball game even further. So my view on that is that, while the personalization of financial services is going to gather further pace, I think for a lot of banks, they will also have to rethink their competitive strategy because their competitive strategy used to be regulatory. Their competitive strategy used to be, you know, lowest cost of money. So while they can still take all the deposits all day long, I think Non-banks are not looking at it. But Non-banks have also found a way to have a lower cost of money, which wasn’t there earlier, and that is going to change and going to create a lot of pressure on banks, because now they are not the only source of liquidity left anymore.

Rohit Arora: Right?

 Kevin Rosenquist: Yeah, that makes sense. Well, Rohit Arora with  biz two credit. Thank you so much for being here. I really appreciate your time.

Rohit Arora : Thank you for the opportunity.

 Kevin Rosenquist: Bye.