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23 March 2020updated 05 Oct 2023 8:22am

The great unbundling

How Fintech is levelling the playing field for SMEs.

By Justin Fitzpatrick

It’s undeniable that technology has revolutionised finance for consumers and businesses alike over the past decade. With just a few taps on my mobile phone, I can open a digital bank account, wire money to relatives abroad, and buy and sell shares on the stock market.

Until now, the same benefits that consumers take for granted have failed to reach small and medium-sized enterprises (SMEs), who have suffered from a distinct lack of choice when it comes to financial services offerings. A huge gap still exists between the funding SMEs need and what they can access, estimated at nearly £60 billion.

So, why haven’t financial services providers leapt at the chance to cater to this underserved market? In large part it’s because although SMEs are small, they are not necessarily straightforward or cheap to service. Research from McKinsey & Co shows that these smaller businesses are typically more expensive to deal with and generate lower revenues than larger commercial clients. This has been true up to now. But the status quo is changing and it’s changing rapidly.

Fintech adoption among SMEs is surging

A wave of Fintech ecosystems is making it possible for SMEs to access a wider range of financial products that are cheaper and more tailored to their requirements. This unbundling of financial services means smaller businesses can now turn to a growing number of providers that can offer them the same seamless digital experience we expect as consumers. And they are doing so more and more. The global adoption rate of Fintech by SMEs sits at 25 per cent currently, but an EY survey suggests by the end of 2020 that could rise to 64 per cent.

Just as importantly, the unbundling of financial products from traditional providers has, in effect, hit the reset button for SMEs. With more companies competing for their business, it’s providing them with the level of service that’s higher than ever.

Reports show that the most important aspect for SMEs when choosing a Fintech provider is the range of functionality on offer, at 66 per cent, just ahead of 24/7 access to services and support, at 55 per cent. Notably brand and trust were the lowest reason, at 31 per cent, indicating that many SMEs are willing to look past established brands if it means receiving a superior service.

Ecosystems are disrupting the status quo

We know SMEs have long been crying out for better banking services. By their very nature, smaller companies simply don’t have the same resources as large companies when it comes to evaluating the best products for their needs. In a survey of 500 SMEs in North America, McKinsey & Co found business owners see Fintech ecosystems as a way to save time on administration tasks so they can devote more time to their core business activities.

Similar to the consumer market, SMEs are increasingly willing to share their data in return for a better range of offers, with 89 per cent of small businesses happy to share their banking data.

Fintech ecosystems, such as Funding Options, are platforms where businesses can access a range of banking and financing products, as well as payment services and other solutions from banks, challengers and non-financial technology companies. This proliferation of ecosystems mirrors what we’re already seeing in the tech space with the likes of Microsoft AppSource, AWS Marketplace and Salesforce App Exchange (which has generated over six million app installs since launch in 2005).

It’s not just start-ups that are behind this revolution, either. We are also seeing big tech firms driving this change, many of which are doing so in partnership with large financial services companies to combine the granular data they hold on businesses and individuals with financial expertise. Amazon is working with Goldman Sachs, Google has partnered with Citi Group, and ride-sharing company Uber has launched a comprehensive range of financial products for its drivers called Uber Money.

Embracing transformation in financial services

Taking advantage of these new ecosystems is a necessity for companies in the financial services industry. SMEs are craving a better, faster, more customised digital service and if Fintech companies can offer it, SMEs will flock to them.

As this sector has grown, this has given rise to organisations such as Innovate Finance, which serves to represent and advance the UK’s technology innovators, and create a more transparent, sustainable and inclusive financial services sector. The clock is ticking for traditional financial providers to embrace this new wave of technology, recognising the value of platforms to SMEs and to themselves.

The good news here is that the wider industry isn’t remaining idle. Nearly nine in 10 traditional banks, insurance companies and investment management firms say they’re concerned about losing ground to innovators and as a result around 82 per cent are planning to increase their Fintech partnerships.

At DueDil we’re in a unique position to see this unfold every day. We work with both Fintechs and incumbents to provide them with the company intelligence they need to provide SME services that are fast, frictionless and digital. What we’re witnessing in these relationships is a clear understanding of the need to better serve SMEs and a willingness to transform both business models and technology, in order to make it a reality.

Justin Fitzpatrick is the CEO and Co-founder of DueDil, a company that provides insights on over 50 million SMEs through its API and web app, helping financial services companies to get a real-time view of their customers.

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