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SME banking

Matchi Trend Report - Digital Account Origination

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

Some solutions

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

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.

Banking platforms for SMEs

Some innovators have created simple core platforms that enable mobile and alternative forms of payments

Crowdfunding

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.

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.

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

Financial analytics

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.

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






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.

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