How the rise of digital platforms is meeting unmet needs for SME banking  

How the rise of digital platforms is meeting unmet needs for SME banking  

Banks need to understand and meet the challenges of SMEs and ensure they’re being served appropriately. Thomas Becher, Head of SME Banking at SAP Fioneer, discusses how the SME banking market provides a significant opportunity for financial institutions and how bespoke digital platforms can help tap into this market.

Small and medium enterprises (SMEs) are considered the backbone of the economy in many countries across the world. They contribute significantly to employment, innovation and economic growth. Providing financial support to these enterprises through SME banking can help promote entrepreneurship, create jobs and aid economic development.

However, SMEs often face difficulties in accessing financing from traditional banks that meets their unique needs, as the perceived risks and costs associated can be deemed too high. By offering banking capabilities tailored to the needs of SMEs, banks can help to fill this financing gap and provide these companies with the necessary capital to grow their businesses. According to a report by McKinsey & Company, the global SME banking market is worth around US$350 billion in annual revenues, with significant growth potential in emerging markets.

Digital banking capabilities for SMEs: a win win for both banks and SMEs

With banking capabilities specific to SMEs, financial services organisations can offer customised products tailored to their specific needs, such as flexible loan repayment terms, lower interest rates and access to business advisory services. It gives banks the chance to build long-term relationships with SMEs by understanding their unique challenges.

For banks, having a digital offering tailored to SMEs can be profitable, diversifies their revenue streams and expands their customer base, reducing their reliance on traditional corporate and retail banking segments. This is why it’s important for innovation in the sector, so banks can continue to understand and meet the challenges of SMEs and ensure they’re being served appropriately.

Three ways SMEs can be supported by specialised banking capabilities

Easier access to financing

Cash flow management is critical for SMEs, and banking services can help businesses better manage this. This could be by providing actionable insights, e.g. detecting liquidity shortages. One of the primary benefits of banking capabilities tailored to SME needs is access to the right funding options. SMEs can access a range of lending products and services, like lines of credit, term loans or invoice financing. These capabilities can help businesses better manage their operations, invest in growth and manage cash flow proactively.

A hyper-personalised customer experience

Data is essential for Digital Transformation in the sector and digital banking platforms are becoming increasingly popular within SME banking. These platforms allow banks to have access to data and can create a hyper-personalised customer experience that allows them to support the needs of SMEs through offering features such as online account opening, digital loan applications and automated underwriting. They can also provide SMEs with access to a wider range of financial products and services, including cash management, foreign exchange and insurance.

Banks can have their digital platform fitted with bespoke products that can provide SMEs with more customised solutions that can better suit their specific needs, creating a one-stop-shop. Not only will this further enhance the customer experience, but it ensures SMEs will be served appropriately. They can also provide SMEs with unique advantages, such as more favourable terms or more efficient processes, which can help them stand out in competitive markets. Through a digital platform, a bank can also offer alternative lending options as a substitute to traditional bank loans. These options can include peer-to-peer lending, crowdfunding and invoice financing.

Seamless integration with non-finance platforms

Embedded finance, the integration of financial services products directly into a business’ products or services, also unlocks new potential for SME banking. It empowers banks with data-driven insights so that they have all the relevant information when it comes to business processes, such as risk assessments for lending and even invoice finance.

Currently, getting invoice financing as an SME can be stressful, with hours spent filling out forms and deciphering costs and fees when they could not get approval – a less than ideal situation for an SME that’s facing cash flow challenges. By being able to access invoice financing through a digital platform using embedded finance, it means that SMEs can get an almost instant response on whether they are approved for financing. It also gives lenders sight of an SME’s finances, with accurate data so it can provide accurate financing personalised to the specific SME.

What lies ahead for digital banking with a focus on SMEs?

The rise of digital technology is transforming SME banking, with personalised platforms and solutions leading the way in how banks can take a customer-centric approach. Looking at the year ahead, regulatory changes, such as the implementation of the EU’s General Data Protection Regulation (GDPR) and the Payment Services Directive (PSD2), are also driving change in the sector. These regulations are aimed at improving transparency, competition and customer protection and will impact Digital Transformation moving forwards.

Artificial Intelligence and automation are also increasingly being used in SME banking to improve efficiency and accuracy. Examples of this currently include chatbots for customer service, Machine Learning for credit scoring and robotic process automation for back office functions, but with further developments in this space we see this going even further as we move through the year.

Lastly, SMEs are increasingly focused on sustainability, and banks and financial institutions are responding by offering sustainable finance products and services. This includes financing for renewable energy projects, green bonds and sustainability-linked loans.

Overall, the SME banking market represents a significant opportunity for banks, FinTech companies and other financial institutions. By providing tailored solutions to meet the unique needs of SMEs, providers can tap into a significant and growing market, differentiate themselves from competitors and drive sustainable growth. At SAP Fioneer, we can empower banks and financial institutions with these technological solutions that’ll help them create a hyper-personalised customer experience and serve customers better, faster and at scale with our new SME banking platform.

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