Interview with Accenture on improving SME banking with Embedded Finance

Olivia Jeavons from Accenture talks about the pain points of SMEs and how Embedded Finance can help improve them.

Small and medium-sized enterprises (SMEs) are thought to represent 90% of all firms globally – so they represent a large and diverse segment.

In 2021, to understand this complex segment better, Accenture ran a survey across 11 countries globally. We asked about pain points and found common themes to be growing their business, talent acquisition and retention, supply chain management, managing their cash flow and taking care of administrative tasks.

This goes some way to explain the rise seen in digital platforms targeted at SMEs over the past few years – like Xero and QuickBooks for accounting, Shopify and Wix for ecommerce, Canva for digital marketing… I could go on. These platforms are doing a great job of making the day-to-day easier for small business owners and managers – addressing their needs without creating pain points.

Today – across the world – it is common for a small business owner seeking capital for growth to be faced with a twenty-page loan application that they have to print off, multiple visits to a branch, and weeks of waiting before seeing cash in their account.

It is not surprising, then, that 47% of the SMEs we spoke to feel that their bank doesn’t try to understand their challenges.

Financial products and services are a means to an end, not an end themselves.

Embedded finance integrates banking services into the digital platforms and apps which SMEs use day-to-day. Through digital and data capabilities the right financial product is served at the right time to the customer, and it’s easy to take up.

The customer sees time spent on admin reduced, can get access to the financial product or service more quickly, and ultimately can spend more time focused on running their business.

We’re seeing the most traction in solutions that help SMEs get paid more efficiently and those that help them grow their business.

In traditional banking terms, we’d think of payments and loans, however, to win in an embedded finance world, I’d like us to think a bit differently.

I think it’s worth taking note of the ‘customer-obsessed’ approach taken by many of the digital platforms.

Rather than starting with a list of the products a bank offers today and deciding which to ‘embed’ in a digital experience, we should start as we did with this conversation: by considering the needs and pain points of the customer. Most beneficial for SMEs is a pain-free experience that addresses their needs – financial products or services should be seen as an enabler of this.

Our research suggests that embedded finance could capture up to 26% of the global SME banking market by 2025, representing nearly USD 124 billion in value. However, there is a long way to go to achieve this – and each player needs to take conscious steps to capitalise.    

Banks have an opportunity to reach new SME customers through digital platforms. As a new distribution model, this has huge potential for small or regional banks with growth ambitions.

For larger banks, it is a bit more complex. Many are uncomfortable with the idea of handing off the ownership of customer experience to other brands. The benefits shouldn’t be underestimated, though, especially the potential of reducing the cost to serve this traditionally low-margin segment. Our research tells us that 41% of SMEs are interested in using banking services offered by a digital service provider, with a significant proportion willing to pay the same or more. Altogether, the potential impact on traditional banks’ revenue streams is significant.

We’ve seen the most activity to date in the accounting and ecommerce space. Digital platforms providing these services to SMEs gather a lot of data on their customers that can be leveraged (with consent, of course) to figure out which financial products customers most need, and then accelerate the application and approval process.

Regarding the types of partnerships, we are seeing two models emerge, ‘pass-through services’ and ‘platform branded services’.

With ‘pass-through services’, the digital platform gives customers easy access to bank-branded financial services. This approach allows banks to capitalise on their existing products and technology while keeping some brand relationship with the customer. Here in Australia, accounting platform Xero acts as a distribution channel for Westpac, NAB and ANZ Bank business loans.

With the ‘platform-branded’ model, the service is seamlessly integrated into the platform’s user experience and the bank becomes a near-invisible service provider. Shopify’s Balance and Capital products are an example.

This interview was first published in The Paypers' Embedded Finance and Banking-as-a-Service Report 2023, which is the latest comprehensive market overview and analysis focusing on the key products and players within the Embedded Finance and BaaS ecosystem.     

About Olivia Jeavons

Olivia sits in Accenture’s Strategy and Consulting business based in Sydney. Olivia works with Accenture’s clients in the Banking sector to define business-led technology strategy and enable value-driven technology transformation.

About Accenture

Accenture is a leading global professional services company that helps the world’s leading businesses, governments, and other organisations build their digital core, optimise their operations, accelerate revenue growth and enhance citizen services – creating tangible value at speed and scale. We are a talent and innovation-led company with 738,000 people serving clients in more than 120 countries.