About 25 million small and medium-sized enterprises (SMEs) are present (1) in the European continent, accounting for more than half of Europe’s GDP. In the US, there are 30 million SMEs generating about two-thirds of jobs in the private sector (2). If you cross the pond to the Asia-Pacific region, you will find that SMEs comprise 98% of enterprises and employ 50% of the workforce (3).
Owing to the significance of SMEs to economies and given the COVID-19 pandemic’s huge impact on SME cash flow, both governments and banks worldwide are finding ways to provide small businesses with stable finance and personalized services designed to help them manage their business better.
Many banks have started to adopt and leverage top-notch technologies to expand their digital offering for SMEs – but have they succeeded in serving this segment of customers better? Have they found the silver bullet yet?
Earlier in 2021, FintechOS partnered with Efma to poll 40 global SME bankers on the challenges and emerging initiatives in SME banking. We explored the topic further by interviewing SME bankers and experts in our community and compiled the most important learnings in a new report– “Seven Banking Leaders on Fintechs, Challenges and the Future of SME Banking”. Please find below the five takeaways from this report:
#1 Banks need to revitalize the ways they lend much-needed capital to businesses
Official statistics show that about 40% of formal micro, small and medium enterprises in developing countries have an unmet financing need of $5.2 trillion every year (4).
“It is of the utmost importance to revitalize the methods banks use to lend much-needed capital to businesses – no matter how large or small they are”, said Tunde Kehinde, Co-Founder and CEO at Lidya, a financial institution that provides access to credit and finance across frontier and emerging markets.
The trend in SME banking follows the trend in retail banking, where emerging entrants like neobanks, challenger banks, BigTechs, retailers, telcos and so on have pushed banks to embed technology in their business models and accelerate digital transformation to meet shifting customer needs.
All executives and experts polled or interviewed during FintechOS’ research on SME banking pointed out the strategic role of digitization in unlocking the full opportunities of the SME market.
#2 Any initiative starts with “continuous learning”
Patrick Pfaff, responsible for ABN AMRO’s services for SMEs, placed the importance of learning at the top of the list, while Raluca Nicolescu, CFA SME Director at Raiffeisen Bank, used the word “learning” several times throughout the interview.
A good learning example comes from HSBC, which recently launched HSBC Kinetic, a new mobile business banking service designed to help SMEs manage their finances 24/7 from a smartphone. HSBC Kinetic was developed using insights from over 3,000 small business owners, Martin Hyde, Head of HSBC Kinetic revealed in the interview.
Ionuț Encescu, Head of Products at First Bank, mentioned three key digital initiatives that place the customer at the center:
- Creating best in class lending processes,
- Developing high quality UX and UI mobile and internet banking interfaces for customers and
- Building a reliable and resilient service ecosystem, a task he described as “mandatory”.
#3 Banks are moving away from a product-oriented mentality to a customer-centric one
Raul Risnita, Head of Companies Digitization Department at Banca Transilvania, observed that in recent years, banks “have struggled” to change their mentality from product-oriented to customer-centric, from risk adversity to failing fast, from waterfall to agile. “But I believe fintechs have accelerated the process for banks and have set up a new standard of approach,” he said.
Read the Full Article HERE.