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Why Leaving Tax Out Of Fintech Is Leaving Opportunity On The Table

By News Creatives Authors , in Small Business , at October 26, 2021

President and COO of Avalara, a cloud-based compliance solutions provider that helps businesses of all sizes get tax compliance right. 

If you’ve made a purchase today (coffee, gas, sneakers), paid a bill or sent money to a friend, you’ve touched a fintech system somewhere. Probably several. Most likely, you had no idea just how many actions had to happen in real time to make your everyday transaction possible, but it’s happening right before your eyes. Payment is being determined, shipping costs are estimated and tax is being calculated before you even hit the purchase button.

We live in an omnichannel world, one defined by consumers demanding convenience, flexibility and accuracy in their shopping experiences. The technology used to power commerce has had to become more integrated to connect the customer experience across channels, platforms and back-end systems.

The connectedness of fintech is happening all around us. Whether it’s an e-commerce platform offering native payment processing solutions or a payment provider offering shipping services, the fintech model has become more streamlined to power positive purchasing experiences and merchant profitability as well as increase margins for technology providers. Despite moves to add value across the many contextual pieces of a transaction, in my opinion, many fintech providers are leaving opportunities on the table when it comes to tax.

Modern fintech models must be flexible and holistic.

The first wave of fintech in the late 20th century made financial services easier to access and manage for businesses, but all the innovation during that period was built on top of legacy on-premises infrastructure. Today, the availability of API-based SaaS infrastructure has made adding fintech services easier for end users. With APIs for custom development, fintech providers can natively offer their customers various pieces of fintech infrastructure that they need.

In addition to flexibility, fintech providers are seeing value in offering holistic fintech solutions to businesses, meaning that a single fintech provider offers additional financial services on top of their flagship offering. Take a look at just about any payment provider or e-commerce platform today, and you’ll see this happening in real time. For example, payments giant Square recently agreed to buy the buy now pay later technology provider Afterpay, while Amazon entered into a partnership with another buy now pay later provider called Affirm. In the e-commerce space, platforms like Shopify now offer native payment functions like Shop Pay.

Tax technology can benefit the customer and the bottom line.

Tax is part of every transaction that takes place and, for argument’s sake, is the most complex piece of every transaction. There are thousands of tax jurisdictions around the world that have different tax types, rules and rates. For businesses selling online, chances are they’re touching any number of tax jurisdictions daily, so to process transactions, they must get the tax rules right, collect and remit it for every purchase, something that simply isn’t realistic without technology. If you’re a fintech provider that touches transactions, I believe that thinking of tax as an afterthought is doing a disservice to your customers, as well as your bottom line.

By including tax as part of B2B and B2C fintech models and offerings, technology providers can capitalize on a world of added opportunity, including an improved merchant experience, data visibility and remittance economics. Improving these transactional components means that merchants and their customers have a better experience, and technology providers can increase their revenue share.

The benefit to the customer experience is twofold: the merchant’s experience on the back end and their customers’ experiences at checkout. For buyers, having tax technology included at checkout can help improve the customer experience by increasing the accuracy of tax calculation on every transaction, which means more accurate checkout costs. For merchants, automating tax at checkout not only reduces audit risk but also helps increase data visibility and streamline tax reporting and remittance obligations.

For fintech providers, partnering with tax solution providers or creating your own native solution to add tax to the tech stack can create additional revenue streams. For example, a payment provider can sell payment and tax solutions together. Other examples of additional sources of revenues by adding tax capabilities include fraud management, improved cash remittance and improved merchant cash advance offerings. When adding tax technology to the fintech stack, just keep in mind that API integrations are critical.

Modern fintech models touch nearly every aspect of B2C and B2B commerce. As fintech providers look to stay competitive in today’s omnichannel world, addressing every piece of the transaction — items, payment, shipping and tax — will be critical. The opportunity associated with tax technology goes far beyond reducing compliance risk, which is why it must be a primary fintech function moving forward.

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