SMEs have struggled to access suitable and affordable banking, payments, and lending solutions for many years. However, when you factor in a global pandemic that forces thousands of those businesses to shut down for weeks or months at a time, bringing cashflow to a standstill overnight and without warning, the picture grows bleaker still.
With little cash left in the accounts and government support not always going far enough, SMEs need additional funding to pay rent, utility bills and payroll, not to mention ordering stock so they can kick-start cashflow. Unable to provide a long credit history or report consistent revenue, many SMEs are finding that their usual bank can’t help, and they are left unable to gain access to the funding they need.
The issues
The latest research from Banking Circle, an innovative financial infrastructure provider, looks into the attitudes of SME business leaders across Europe. Our study revealed a significant gap between their needs and expectations, and the quality of advice and service they receive.
Nine in ten SMEs are happy with core account services – but almost one in four experience customer service issues with their bank.
One in five (22%) of the SMEs we spoke to waited up to two months for loan application responses, with 25% waiting up to a month. Alongside high fees (42%), SMEs said poor quality service and low responsiveness reduced their confidence in their bank. However, only 27% of banks believed there has been an erosion of bank customers’ trust in recent years.
When banks first started, market requirements were very different, and no one could have imagined the cross-border, digital, international trading landscape in which we find ourselves today. The once-pioneering systems and in-house servers on which banks are built now present a significant challenge in deploying new software and applying best practices.
50% of banks say the move to digital services is a major challenge, yet two-thirds believe they are keeping pace with technological change. However, smaller companies are turning to alternative providers for faster, cheaper solutions – almost half (48%) of SMEs have looked elsewhere for banking solutions that better suit their needs.
The solutions
European banks have often claimed SMEs are expensive to service, and their needs too diverse. However, our latest report includes examples of providers that are already getting it right. It also sets out concrete areas where financial institutions can adopt new approaches to support small companies for a profitable, sustainable future in the next normal – post-COVID-19 – without the need for significant investment.
Where incumbent banks are built upon monolithic legacy systems, fintechs are built in the cloud. They are flexible, nimble, more able to adapt quickly and launch new solutions to meet the rapidly evolving needs of smaller businesses. We, and other fintechs like us, are building systems designed from the basic understanding that technology is ever-evolving and that tomorrow, what was the norm today, may need replacement or an upgrade.
In the past, banks often had the mentality that they could do everything in-house. But those that tried to overhaul their legacy infrastructure to deliver new solutions found it too difficult. That mindset has now shifted. Banks are increasingly open to collaboration to deliver the best solutions.
Banking in 2021 and beyond
SME needs are indeed extremely diverse, and no single provider can successfully meet them all. Ultimately, achieving total financial inclusion for SMEs requires a joined-up ecosystem, where various financial providers connect their solutions. Making these connections will be of vital importance to global economies as we look to recover from the worst health crisis in a century, and one of the biggest economic shocks in history.
Partnering with specialist providers within the financial ecosystem in a platform or white label arrangement reduces cost and enables tailored services through existing banks’ digital channels. Financial infrastructure providers like Banking Circle are focused on developing the technology to process payments directly, and to integrate into a vast network of local clearing and payments schemes.
Using decoupled architecture, financial infrastructure providers can easily update or replace individual pieces of architecture with limited impact on the rest – meaning they can quickly add more functionality and work within new geographies. This means they are uniquely placed to give banks and payment businesses the ability to provide their business customers with faster and cheaper cross border banking solutions.
As we all know, SMEs are vital – so much so that they are often referred to as ‘the backbone of the economy’, and rightly so. In the EU alone, there are more than 22.2 million SMEs in the non-financial business economy, making up over 99% of the region’s businesses, accounting for 67% of EU employment and contributing to more than half of all business turnover.
Poor access to payments, lending and bank accounts is putting these precious businesses at serious risk - today more than ever before. Providers of all types need to make changes so they can serve smaller businesses better.
To find out more about how financial services providers can improve their service for SMEs, download the white paper here: Bounce-back banking: 5 markers for success in delivering SME financial services
About Anders la Cour
Co-Founder and Chief Executive Officer of Banking Circle, Anders la Cour used his experience in legal M&A and venture capital, and strong commercial acumen, to co-found Banking Circle in 2013. In 2018 he orchestrated a USD 300 million management buy-out with EQT and secured a Banking Licence in 2020. Anders is the inaugural Chair of the Emerging Payments Association EU, having been on the EPA Advisory board since 2016. He is regularly invited to speak and present at industry events around the world, has won multiple awards and had thought leadership articles published in a range of industry publications.
About Banking Circle
Next-generation provider of mission-critical Banking infrastructure, Banking Circle is leading the rise of a super-correspondent Banking network. Banking Circle is a fully licensed Bank able to deliver compliant and secure financial infrastructure at low cost. Clients, including Banks and Payments businesses, can now access real-time payments regardless of borders and regardless of size, allowing them to seize market opportunities without having to commit to significant investment in their own internal infrastructure.
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