Impact of Fintech in Small and Medium-sized Enterprises (SMEs)

09.09.2022

Over the past years, the fintech and insurance industries have seen drastic changes, mostly beneficial improvements, especially during the Covid-19 pandemic and the still ongoing digital transformation globally. However, small and medium-sized enterprises, also called SMEs, have generally suffered greatly. Many of them resorted to taking loans to thrive because they were unable to meet the expensive demands that lockdowns and forced closures imposed on them.

As global inflation rises, SMEs are once again struggling against a rising tide. Banking firms and financial institutions can provide a helping hand in the form of new products and services that can alleviate the difficulties of running a small business during difficult times. But what precisely do they offer?

BIG CORPORATIONS VERSUS SMEs

According to Rob Straathof, Chief Executive Officer of Liberis (a leading global embedded finance platform company), a key distinction between small and medium-sized business banking and big enterprise banking is that SMEs owners frequently act on instinct rather than having a board of directors or multiple CFOs manage the majority of the financial aspects of running a business.

Impact of fintech in small and medium-sized enterprisesStraathof mentioned that SMEs typically require advice around managing assets and capital, getting their bills paid timely, and making sure they have adequate liquidity to pay personnel and suppliers versus their incoming revenue.

He pointed out that there are many options open for SME owners if they need help such as loans, but the issue is that usually, they don’t fully comprehend what the appropriate goods are or whether they will be readily available once they do.

Roger Vincent, currently a managing director in Trade Ledger, a Corporate Lending Platform in Ireland and U.K., indicated that small enterprises often times offer specialized services from their banks given that they have more commonalities with their consumers than huge corporations.

Vincent mentioned that small business owners generally demand the same kind of digital capabilities that they enjoy in their personal lives, and typically, they may even manage their corporate money alongside their personal accounts. On the other side, huge Fintech companies frequently have a greater understanding of this matter than traditional banks, and more crucially, they are agile and technologically advanced. This implies that they can develop fresh goods and services that meet the demands of small enterprises extremely quickly.

FINTECH SERVICES FOR SMEs

Given the distinct demands and requirements when it comes to supporting services, Banks that sell products to large-scale enterprises may not always be a good fit for small businesses. Straathof argued that because fintechs provide cutting-edge tools like cash flow forecasting – which are offered by Tide, Xero, and Nuula, among others – they are typically more suited to assist small firms.

He suggested that through third-party Open Banking providers like Plaid and TrueLayer, Fintech companies may fill the gap to connect lenders to small business owners’ existing systems, data mechanisms, and bank accounts.

Fintechs can offer estimates of cash flow requirements so SME owners can determine whether they have enough money on hand, identify any overdue invoices, and, if necessary, get assistance with collections.

Straatof noted Kolleno as another illustration of a top-notch fintech that supports credit control solutions for small firms.

FINDING APPROPRIATE BANKING SUPPORT FOR SMEs

In most cases, small and medium-sized business owners benchmark and compare banking services and select the fintech that best meets their requirements.

According to Straathof, a firm must ask itself a full range of questions in addition to ensuring that the standard functionality was met. These includes:

  1. Is the bank an Open Banking partner?
  2. Does it work well with their accounting systems?
  3. Does it use computerized cash flow forecasting?
  4. Do they have sufficient SME credit options and services?

Straathof mentioned that many banking enterprises available in the competition do not currently offer SME lending products. He also added that even though most established banking companies do have relevant loan products available, most of them rarely approve SMEs.

Finding the ideal banking partner is not simple. And as mentioned by Straathof, the big question marks that should be asked are the aforementioned items for Open Banking, cash flow forecasting, accounting integration, and finance services.

Although it may be challenging to provide an immediate response to these queries, these should still be asked and answered, nonetheless.

Straathof also indicated that by harnessing and leveraging the data that SMEs have, Fintech organizations like Liberis should be able to work with many different ecosystems to offer the appropriate finance, to the right SME owners, at the right time.

WHAT’S NEXT FOR SMEs AND FINTECH

According to Vincent, if we are going to look at the current trends and directions that retail banking is coursing, we should expect good progress and bright tomorrow for small and medium-sized banking enterprises. He added that digital services that we use on a daily basis are gradually entering the SME space since financial service companies are making significant investments to enhance their offerings to small businesses.

On top of these, a modernized and digital bank with the functionality of a “Super App” that offers products and services such as forecasting, reporting, accounting, payment transactions, invoicing, crypto and stock monitoring, etc., along with lending options available to businesses at the right time – all in one dashboard – is what Straathof calls a “mega-trend” for the next two years.

CURRENT TRENDS IN SMEs

Below outlines the latest trends in small business banking:

  • TIMELINESS – Neobanks offer instant bank account creation, and conventional banks like JP Morgan, Investec, and Marcus are following suit. For companies in need of finance, Liberis may connect to their bank accounts and platforms to grant them access to immediate financing that can be collected in a matter of minutes.
  • DIGITAL PRODUCTS CONSOLIDATION – An overview of things like transactions, liquidity, unpaid invoices, tax return submissions, and financing qualifications is provided via one dashboard that interfaces with accounting software.
  • SUPER APPS – PayPal and Revolut are developing Omni-services within the constraints of their current eco-systems. For instance, users can use Revolut to make purchases, buy pet and travel insurance, and use Open Banking to link to their other bank accounts and view credit card transactions.
  • DIGITAL CAPITAL – To sustain their erratic working capital cycle, small businesses have relied on bank overdrafts or consumer credit cards for such a long time. As a result of the technological development and digital transformation in the lending space, banks, experts, and fintech companies are now developing new seemless finance products that use real-time data processing to determine a borrower’s eligibility for other lending products, including loans, invoice financing, and asset financing.
  • OPEN FINANCE – This makes it possible to collect user information from several financial platforms in a single location. Customers can get a real-time snapshot of their cash position, capture any potential threats to their organization, or spot capital deficiencies before they become serious by having all banking activities, sales transactions, and credit data on one platform.
  • EMBEDDED FINANCE – The capability of financial institutions to integrate their offers into channels run by other third parties. This could imply that a small firm can access a variety of market options through its banking platform.
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