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By FintechOS · July 21, 2021
3 minute read

The SME Financing Challenge: Why Digitization Matters

The SME Financing Challenge: Why Digitization Matters

The underserved informal SME sector is estimated to have a $2.9 trillion demand for finance. How could banks fully reach this market? 

The SME market is mostly informal because small businesses don’t keep formal record-keeping activities (e.g. financial accounts or audited financial statements). Therefore, many informal SMEs are unbanked – this prevents banks from using electronic data to assess cash flows. 

An IFC’s MSME Finance Gap study (2017) found that 40% of micro, small and medium enterprises – or the equivalent of 65 million enterprises in emerging markets – need an estimated $5.2 trillion to develop and support their businesses. “In addition, the informal sector remains largely underserved with a roughly $2.9 trillion demand for finance”, the study shows.  

Hence, “a significant opportunity for financial institutions to increase their small-business banking infrastructure and cater to this market segment”. 

But how to unlock the full opportunities of the SME market? 

top five trends that will shape the nature of small business banking

 “Better digitization strategies” – through technology adoption – are needed, according to the IFC.  

Catalin Dediu, Vice President of Product Management at FintechOS, addressed this topic – The SME Financing Challenge – during Amsterdam Fintech Week event. You can read below the main take-aways from his keynote speech delivered: 

 #1 Use the Right Tech to Unleash Internal Data 

Banks are well placed to reimagine their core lending products by, for example, offering short-term “top-up” loans to SME customers that can be applied for and approved in a matter of minutes. For that, banks must use existing data and advanced analytics to refine a product to meet a specific, targeted need. 

#2 Tap into the Power of Tailored Recommendations 

Several banks have achieved a ten-fold increase in their data-driven recommendations’ success rate, while others have managed to boost new sales by over 30%. Where Relationship Managers (RM) have worked in tandem with these engines, banks have seen the number of RM-customer interactions increase by more than 50%.​ 

#3 Tap the Power of Automation 

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. ​ 

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%.​. 

#4 Make use of Ecosystem integrations and value-added services 

33% of SMEs are already using, or have expressed an interest in using, a range of services to help them run their businesses, improve customer service, and boost sales. Banks will need the ability to connect with inter linked businesses from across a diversity of sectors. To do this they should embrace the use of API-enabled platforms designed to allow multiple stakeholders, from providers to end-users, to seamlessly connect, interact and exchange value. 

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MAIN PHOTO Credit: Unsplash

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You can register here to watch the recording 


Amsterdam Fintech Week (XFW) gathers all stakeholders and players active in the ecosystem of digital finance. The goal is to connect players within the European Fintech space and to involve key stakeholders to participate.  


For more findings on this industry, ➡️download our whitepaper “Seize the Moment: How Data and Tech Can Bring an SME Lending Surge for Bank”: https://info.fintechos.com/whitepaper-sme-lending 

On the same topic ➡️ The 4 Steps to Future-Fit SME Banking



Related articles: 

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 

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