Fintech innovation have allowed stronger support for SME infrastructure that were previously limited to larger enterprises, ultimately positively influencing their risk rating, e.g. enhanced financial controls, data analytics, low cost marketing models.
The banking sector globally is at the coal face of the challenges faced by SMEs which, on the one hand, can be a strong driver of economic activity and thus banking growth. However, the inherent risk of SMEs is often regarded as a poor risk which leads to reluctance to lend or offer non-monetary support. This apparent dilemma is often exacerbated by social and governmental pressure to support such SMEs.
The main issue is frequently labelled “access to finance” but this has several parts:
- SMEs that do not meet qualification criteria – usually based on traditional collateral based credit models
- High costs of financing – again due to poor credit rating
- Poor credit history – usually insufficient trading history; or discomfort with the sector or business model
- Lack of acceptable collateral – usually fixed or movable assets or near liquid assets. Other assets are often ignored, e.g. livestock
An additional channel of funding is the crowdfunding model where banks have also partnered with such companies to share assets at different degrees of subordination
In addition, there is a limited of specific products beyond vanilla funding, e.g. purchase order finance, import finance, trade finance, hedging products
SMEs struggle frequently because of the cash conversion cycle – there are also innovative payment systems that allow for near instant payments that are app based
Fintech innovation have allowed stronger support for SME infrastructure that were previously limited to larger enterprises, ultimately positively influencing their risk rating, e.g. enhanced financial controls, data analytics, low cost marketing models
Access to finance
Resources and assistance in obtaining funding is a somewhat neglected part of the fundraising process. A level of education and assistance is being offered by innovators that could easily claimed by the banking space
- Digital platform to allow SME to apply for loans to multiple banks
- Website of resources for raising finance for SMEs
Alternative credit models
Traditional bank scoring models rely on historical financial statements over several years. Newer models can analyse transactions in real time and algorithmically assess loan facilities and rates based on financial performance over much shorter periods, and do so in real time.
- Alternative credit scoring methodology for SMEs to access credit while de-risking the bank
- Solution to allow banks to make real-time credit decisions for micro enterprises, based on their sales history.
- Alternative credit scoring system based on non-financial data like social
- Alternative credit assessment for farmers using data from their value chain
- Diagnostic tool for company credit risk assessment and predicts default
Banking platforms for SMEs
Some innovators have created simple core platforms that enable mobile and alternative forms of payments
- Low cost core banking platform to perform the banking operations for Business Banking
- Low cost banking platform for microlending institutions that manage uncollateralised loans
- Automates corporate account management for B2B eCommerce buyers and sellers - "PayPal for business"
- Adaptable Digital Banking Platform that enable smartphone enabled payments
- Digital commerce platform to enable merchants to accept Bitcoin as payment
Digital crowdfunding has become an alternative for small businesses and start-ups. The crowdfunding market globally is estimated to be over $30bn. The pool of potential investors has considerably widened and allows smaller amounts depending on their risk appetites. In some cases, funding is theme based where investors have higher risk tolerances for companies in particular sectors or serving specific segments.
- Equity raising crowdfunding Solution for Small and Middle sized Enterprises
- Platform to manage fundraising for SME customers under the USA Jobs Act
- Peer to peer funding platform for SMEs in Asia
- SME trade financing via a network of funders at lower cost
Cloud based financial management
There are a myriad of online accounting solutions that allows small business to manage their finance, plug into their existing online banking offerings and maintain reporting standards. Some solutions give real time financial statements and cash flow trends that allow efficient collections and cash flow management.
- Simple accounting software for SMEs
- Business accounting solutions that integrate with a banking account
- Accounting software package for SMEs
Easier payment mechanisms
A contributory factor to cash flow challenges is the late payment of debtors. Offering customers a set of convenient payment solutions may mitigate these
- Mobile payments at merchants by scanning a QR code
- Mobile payments using QR codes for microtransactions and bill splitting
- Payments system for mainly SMEs to automate payment, debit or and credit processes
Analysis of financial statements, and indeed, of other data has been usually inaccessible to small businesses. However, there are now financial analytics solutions available to any size of business, generally available online or as an app.
- Cloud based artificial intelligence analysis of SME finance which identifies issues and suggests solutions
- SME/business banking platform with financial analytics
New marketing models
Sales is the lifeblood of small businesses yet marketing costs can eat into precious cashflow. Fintech companies have unearthed tech-based marketing platforms at lower cost and wider reach than traditional marketing models
- Enabling SMMEs to build and manage their own mobile app for free.
- Online sales and marketing platform to grow businesses
- Tool that enables individuals or business owners to send social media updates or marketing messages to all their social media accounts
- Contact Terence Singh for specifics about any of the solutions mentioned above
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More on Matchi: Matchi is a global fintech innovation match-making firm, since 2013. Matchi has worked with over 100 leading banks and insurance companies (FIs) around the world, and has a database of over 2,500 fintech firms. Matchi provides both a highly curated portal of fintech solutions, as well as bespoke projects for FI clients to source targeted fintech solutions aimed at the FIs focus areas / pain points. The global Matchi team has run Innovation Challenges and Market Scans for multiple FIs around the world, in markets as diverse as Canada, Japan and India, as well as searches in other geographies.