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By · May 20, 2020
4 minute read

What’s Gone Wrong with Traditional SME Banking

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Traditional SME banking has no shortage of problems: from inflexible products and rigid processes to customer friction and legacy tech blocking change, there’s a lot to put on the transformation agenda. So, what’s wrong?

SMEs are an important source of business for financial services players. Each year, they generate $850 billion globally in revenue for banks. That accounts for 20% of worldwide banking revenues.

Yet, SMEs often say the products and services offered by banks don’t meet their expectations or needs. Across Europe, accessing finance is more difficult for SMEs than for large companies: more SMEs face obstacles, are discouraged from applying for a loan and receive rejections.

In the UK, for example, more than 50% of SMEs apply to only one loan provider because of the “hassle” and time associated with the application journey.

When it comes to onboarding, verification has been singled out as one of the biggest pain points for SMEs: 84% say they’ve had a bad experience of KYC.

So, what’s wrong?

A FintechOS research on the state of the SME banking industry found at least four reasons why SMEs feel their expectations and needs aren’t met:

Overlooked and underserved

  • With their relatively low individual turnover, SMEs have been less of a priority for incumbents.
  • SMEs have yet to benefit from digital innovation to the extent that retail customers have.

Poor product fit

  • SMEs are diverse, but many banks don’t tailor products to subsegments or match them to business life stages.
  • Globally, 20% of SME banking heads say they wish they’d better segmented their SME customers in the previous year to help design products and processes around their needs.

Complexity and friction

  • Front and back office processes are usually adapted from retail or corporate, so SMEs experience long, complex and friction-filled customer journeys.
  • 83% of European SMEs say they want to be able to apply for banking   products more quickly and easily, but only 18% are happy with their bank’s service.

Legacy systems blocking change

  • Legacy remains a massive hurdle for SME banking transformation projects.
  • The threat of digital challengers is focusing leaders’ minds on the need to overcome legacy.

Accessing Finance in Focus – Why Is It So Difficult?

With complex applications and long delays, applying for loans can be a major drain on SME’s resources. And it’s these kinds of barriers that are driving them towards new, customer-centric digital players.

In Europe, more SMEs face obstacles to getting a loan than large companies and 8% say accessing finance is the most important issue facing their business, double the figure for larger enterprises.

Is poor product fit to blame?

When it comes to applying for a loan, product fit is closely linked to an SME’s chances of approval.

Without a tailored offering, an SME is forced to shoehorn itself into what’s available, even though it might look more like a retail or corporate product.

What does it mean in practice?

Going through an application process that hasn’t been designed with them in mind and lower chances of approval. In short, complexity, friction and delays (to be continued).


This article is part of a series of FintechOS articles on SME banking. For more findings from our whitepaper,  ➡️download from here: Stay tuned for more (to be continued).



McKinsey,; BVA BDRC, March 2019, SME Finance Monitor;; International Finance Corporation (World Bank Group), 2019, Banking on SMEs: Trends and Challenges; International Finance Magazine, 2019, ‘Digitising the banking experience for SMEs’; ECB, Survey on the Access to Finance of Enterprises in the euro area – April to September 2019


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About this whitepaper:

We wrote this whitepaper to explain the why and how of the four steps we be believe are critical for future success. We’ve gathered the latest research on the state of the SME banking industry and combined it with insights from SME banking leaders spearheading digital change in their organisations. The result is a clear-eyed view of where the industry is at this moment and the actions banking leaders should take to win in the digital future.



This article is part of a series of FintechOS articles on SME banking. For more findings on this industry,  ➡️download our whitepaper from here:


On the same topic:

How to Unlock the Potential of SMEs

Underserved SMEs: 4 Steps for Banks to Tap the Market


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