How Uber and Fintechs Are Reshaping SMB Lending

Small business lending has experienced significant changes as technology platforms have begun to play a central role in providing access to capital. Platforms commonly used for business operations, such as payment processing and delivery management, now incorporate financial services into their ecosystems. This approach, referred to as embedded finance, uses real-time business data to offer funding opportunities beyond traditional bank loans. One recent example is the partnership between Uber and fintech company Pipe.

This post outlines the structure of embedded finance and data-driven lending, details how platforms like Uber, Shopify, and Square deliver funding to small businesses, and provides examples of their activity in this space.

What is Embedded Finance?

Traditionally, small business owners seeking a loan have needed to supply documentation such as tax returns, business plans, and personal credit scores. The evaluation and approval process at conventional banks can take weeks or months.

Embedded finance integrates lending and other financial products directly within the digital platforms businesses use daily. These solutions use business data, such as sales transactions and daily revenue, to assess creditworthiness. As a result, funding offers can be generated more quickly than through conventional channels.

Data-Driven Lending: Characteristics and Process

The Uber and Pipe partnership provides an example of embedded lending. Restaurant owners utilizing the Uber Eats platform can access capital offers within the Uber Eats Manager app. The underwriting process does not require traditional credit checks; instead, it uses real-time sales data collected through the platform.

Key features include:

• Data-Based Assessment: Underwriting leverages recent sales history on Uber Eats rather than formal credit reports.
• Expedited Decision and Funding: Approval decisions are generated rapidly, and funds may be transferred in as little as 24 hours.
• Merchant Cash Advance Structure: Many offers are structured as Merchant Cash Advances, where businesses receive a set amount in exchange for a fixed, upfront fee. Repayment occurs as a percentage of daily earnings, automatically deducted from payouts.

Karl Hebert, Vice President at Uber, stated that this approach is intended to reduce barriers associated with securing traditional financing.

Platform Lending: Examples from Shopify and Square

Shopify, an e-commerce platform, has provided more than $5.1 billion in merchant financing since launching Shopify Capital in 2016. Funding is used by merchants for inventory, marketing, and business expansion. Shop owners receive offers based on their sales and platform activity.

Square, which offers point-of-sale and payment processing tools, has extended over $24.5 billion globally to small businesses through Square Loans. Loan offers are determined by transaction volume and other relevant platform data, simplifying the assessment and acceptance process.

DoorDash, a food delivery platform, also offers embedded lending through a partnership with the fintech Parafin, using similar methods of data analysis and rapid disbursement.

Platform Lenders and Business Integration

The integration of lending services within operational platforms enables continuous data collection and assessment, which can influence loan offerings and repayment models. Businesses that receive funding from these platforms typically repay loans as a fixed proportion of future revenue, aiding in payment flexibility during fluctuations in business performance.

Global Expansion and Market Data

According to the International Finance Corporation, there is an annual financing gap of $5.2 trillion for small businesses in developing nations. Companies such as Shopify have expanded their lending services to markets outside the United States, including Canada, the United Kingdom, and Australia, with additional markets under consideration.

These developments highlight a shift in the infrastructure supporting small business financing. Access to capital, speed of funding, and integration with daily business tools have all increased through the proliferation of platform-based, data-driven lending.