By FintechOS · October 04, 2021
6 minute read

SME Banking: “Lending has emerged as a priority area for digital innovation”

SME Banking Lending has emerged as a priority area for digital innovation

For decades, SMEs have faced a funding gap,limiting their ability to cope in a risky environment, andgrow. “This must change. The future of SME banking needs to look different – and it will”, says Mike Fullalove, SVP, Strategy and Business Development at FintechOS, in an interview for this report. 

Mike Fullalove, a senior executive with experience across fintech/technology, banking, insurance, asset and wealth management, shares his view on why SME banking is changing at a fast pace.

In what areas do you think banks feel the greatest competition from Fintechs/ neobanks in the SME banking market? 

New technologies have disrupted virtually all industries in the last two decades. In the financial industry, banks have managed to maintain their leadership mostly due to high regulation and customers were generally content with the products and services they received.  

Yet, transformation is starting to shake the financial sector as well, as the new competitors show customers a different way of interacting with their bank and an ecosystem that delivers products in a different way. The incumbent banks are realizing they need to change to deliver on customer needs.  

Let’s look at some examples. The German bank N26, launched in 2013, currently has 7 million customers in 20+ European countries and the USA. Asia-based Kakao Bank attracted 10 million customers two years after its launch, and it is the second most-used banking app in its home country, Korea. WeBank, China’s first private and digital-only bank reported more than 100 million active users in 2018 – four years after authorization. 

What do all these neobanks have in common? One thing that makes them highly competitive is digital innovation. Unburdened by legacy systems and heavy organizational structures, fintechs and neobanks attract customers by charging transparent and low fees, providing faster services, and enhancing user experience through their digital interfaces.  

The areas that incumbent banks feel the greatest competition is their digital capabilities, however, most incumbent banks have a good app and other digital assets therefore more specifically it is the ability to launch new products quickly and make them more personalized to the customer. 

How are banks responding?  

The response is different bank by bank and country by country. But a growing number of traditional banks are investing heavily in digital transformation, spurred on by regulatory changes, such as open banking, and the threat of new fintech or neobank players coming to market. Some incumbents are committing to long-term transformation – from modernizing core banking systems to embracing a new organizational culture. Other banks are trying partnerships with fintech players to ride the digital wave. However, the outcome is the same: digitization as a trend is growing quickly. 

What role technology can play to keep up with the change? 

Technology plays a major role. Basically, digital transformation is not possible without placing the customer, data, and new technologies at the core. Partnerships and ecosystems also play a key role – they help banks reach a wider segment of customers and unlock even more value for them. The aim is to be able to deliver solutions to customers based on their specific problem as quickly and efficiently as possible. To do this, the technology must be built in a certain way to enable the bank to deliver the innovation to customers when they need it. 

Mike Fullalove
“FintechOS has a clear understanding of what banks should do to unlock the potential of the SME market: an end-to-end automated digital loan origination process. A digitized solution can reduce time to yes to under 10 minutes, give SMEs the experience they need, and reduce lending costs by 40%.​” – Mike Fullalove, SVP, Strategy and Business Development at FintechOS

What are the main capabilities and tools banks are using to improve, change and deliver the best possible experience to SMEs? 

No matter how attractive the bank’s products and services are, the efforts are all in vain if the onboarding is not catchy and easy enough. 38% of customers see user experience as the most important factor when choosing a digital bank, according to a Deloitte survey, so getting the onboarding journey right is critically important. Better digitization strategies are needed to reach the potential of the SME market. For traditional banks, lending has emerged as a priority area for digital innovation because it represents an opportunity to tackle high costs, boost customer experience and catch up with the newcomers setting the pace of change. In the future SME lending will be more driven by data and insights. Open banking and APIs in general will mean knowledge of a customer will be much better, allowing more informed, and quicker credit decisions to be made.

FintechOS has a clear understanding of what banks should do to achieve that. An end-to-end automated digital loan origination process can reduce “time to yes” to under 10 minutes, give SMEs the experience they need, and reduce lending costs by 40%.

What does the future of SME banking look like, in your opinion? 

Nowadays, about half of formal SMEs do not have access to formal credit. Worldwide, the credit gap is estimated to be US$5.2 trillion every year according to the International Finance Corporation. For decades, SMEs have faced a funding gap, limiting their ability to cope in a risky environment, and grow. This must change. The future of SME banking needs to look different – and it will. About 600 million jobs will be needed by 2030 to absorb the growing global workforce, which means SME development is a high priority for many governments around the world. This trend has been accelerated by the pandemic. Many governments have already implemented online tools for SMEs and entrepreneurs to find the appropriate financial support. Ireland, Greece and New Zealand are some recent examples.

On the other hand, neobanks – which number 200+ globally – are on the rise. Banks will revitalize the way they lend much-needed capital to businesses, no matter how large or small they are. I am optimistic about the digitized future of SME banking. 

Main photo credit: Pexels

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Register now to get a copy of our report, “Seven Banking Leaders on Fintechs, Challenges and the Future of SME Banking”.

For more findings on thisindustry,️ followtheInsights section onour website. 

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Read more whitepapers on the same topic:  

Digital-First SME Banking — Efma 

10 Key Findings from the Efma Survey on SME Banking 

SME Lending – How data and tech can bring a surge for banks 

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Related articles: 

Seven Banking Leaders on the Future of SME Banking: Five Takeaways 

Digital-first SME Banking: Key Learnings 

The SME Financing Challenge: Why Digitization Matters  

What’s Gone Wrong with Traditional SME Lending – And How to Fix It 

SME Banking: Weathering the Storm 

SME Banks Need to Act Fast: Responding to The Wave of Newcomers 

Cov-19 Response: Banks will have to rise to new digital expectations 

What’s Gone Wrong with Traditional SME Banking 

How to Unlock the Potential of SMEs 

Underserved SMEs: 4 Steps for Banks to Tap the Market 

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