Written by FintechOS - June 25, 2021

6 minute read

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SME-Banking-Cracking-the-Code

Cracking the Code for Successful SME Banking: Three Take-Aways

 Nearly a fifth of European SMEs are relying on family and friends to finance their needs. How can banks turn this underserved segment of customers into a successful area of business? 

Last year’s pandemic-induced crisis brought a major threat to the viability of SMEs. A survey conducted by McKinsey in August 2020 found that one in five European SMEs was worried about defaulting on loans, and more than half felt their business – severely hit by the pandemic – might not survive another year. Another recent report, coming from the European Central Bank, showed that nearly a fifth of SMEs were relying on family and friends for a helping hand. 

But difficult access to finance is not a European-only issue. Worldwide, the credit gap is estimated to be US$5.2 trillion every year according to the International Finance Corporation (IFC).  

As countries are coming out of lockdown and returning to growth, the race among banks to provide faster and more flexible lending solutions for SMEs will gather pace. Fintech lenders – agile, digital, and unconstrained by legacy systems – have the advantage over established banks. What the latter can do for successful SME banking? 

Industry experts agreed in a recent FintechOS webinar on this topic that digitization is important for banks to keep up with new entrants and to unlock the full opportunities of the SME market. The webinar explored the current state of SME banking and got practical insights on how to capitalize on the opportunities of this growing, yet challenging market. 

Read below three major take-aways from our panellists:  

  • Sue Douthwaite, Financial Services Non-Executive Director & Board Advisor;  
  • Tunde Kehinde, Co-Founder and CEO at Lidya, a financial institution that provides access to credit and finance across frontier and emerging markets, and
  • Catalin Dediu, VP, Product Management, FintechOS. 

#1 Digitization is key … 

“Each business is completely unique. All these businesses are now seeking financial products that fit their business needs, “not the other way around.” – Sue Douthwaite, Financial Services Non-Executive Director & Board Advisor.

Fast growing economies are growing rapidly, led by digital-first SMEs seeking credit​. In every sector and business – ranging from startup to multimillion turnover organizations with many staff – business owners want to speed up the support. “To enable that, we’ve got to understand who they are. Digitalization and AI a part of the solution”, Sue Douthwaite, Financial Services Non-Executive Director & Board Advisor points out. “Success will be defined by delivering remarkable and unique experiences and outstanding frictionless service”.  

Sue Douthwaite thinks that digitisation is important to banks as speed to information and support is often a point of friction for their customers. “Digitisation enhances satisfaction and deepens the relationship between banks and their customers. It also enables banks to understand their customers and their changing and evolving needs (…)”. 

Another panellist, Tunde Kehinde, Co-Founder and CEO at Lidya – founded on the principle that economies across the globe will benefit from more liberal access to finance, especially for SMEs – believes that “digitization is key” to providing opportunities for SMEs to unlock their potential and scale their businesses. 

“We believe that an AI approach to digital financial lending not only helps SMEs grow their own businesses but puts in place the foundation for a stronger economic backbone across fast-growing economies,” Kehinde continues. 

#… but is not enough 

 Digitizing the lending sector might appear to be a monumental undertaking, Tunde Kehinde observes, but it starts with thinking about how technology can help streamline processes and implement more intelligent decision-making capabilities. “This is how lenders can begin to work with SMEs in a more cooperative manner,” he points out. 

Sue Douthwaite gives Revolut as an example. “Revolut is not only providing fast online sign-up and efficient customer acquisition, which every SME really desires, but it’s also actively upgraded by client service with tailored financial products and impressive multi-currency options. It is also diversifying beyond banking services with its marketplace and its API integration”. 

“Digitizing the lending sector might appear to be a monumental undertaking, but it starts with thinking about how technology can help streamline processes and implement more intelligent decision-making capabilities. This is how lenders can begin to work with SMEs in a more cooperative manner.” – Tunde Kehinde, Co-Founder and CEO at Lidya

Tunde Kehinde comes up with Lidya as an example of future-proof SME banking. “Our mission is to help use data, use technology and use finance to help the best business owners build high impact businesses in the fastest growing economies in the world. We want to support them so that they can grow, they can create jobs and they can create sustainable businesses”.  

The centre of Lidya business is a tool called Sardis, that allows the institution to onboard customers, and to access customers. “We’re processing close to 35,000 transactions every single month”.  

For a complete understanding of how Lidya operates, check-out Kehinde’s presentation during the webinar. 

 

 

 

 

# What’s in it for banks? 

Each business is completely unique. All these businesses are now seeking financial products that fit their business needs, “not the other way around”, says Sue Douthwaite, Financial Services Non-Executive Director & Board Advisor.  

“An end-to-end automated digital loan origination process can reduce

But why would banks do that? “An end-to-end automated digital loan origination process can reduce <Time to Yes> to under 10 minutes – so give SMEs the experience they need – , and reduce lending costs by 40%”, Catalin Dediu, VP, Product Management, FintechOS explains.  

Besides that, “banks should aim to redesign back-end processes to eliminate manual input and enable real-time decision-making”, Dediu concludes. 

 

 

 

 

Recent developments in banking services include: 

  • fully digital business accounts with superior user experience
  • data integration and automation
  • self-service and 24/7 onboarding solutions
  • individual business finance solutions built on real time data
  • modern technology interfaces that integrate with third party business software.  
  • As a key take-away, Kehinde points out that approximately 7 out of every 10 jobs worldwide are created by SMEs, “so it is of the utmost importance to revitalize the methods in which banks can lend much-needed capital to businesses – no matter how large or small they are.”  

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Register now to watch the full recording of the webinar. 

For more findings on this industry,  ➡️download our whitepaper “SME Lending – How data and tech can bring a surge for banks” 

On the same topic➡️ https://bit.ly/2z0FpGT. 

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Related articles:  

The SME Financing Challenge: How to Use Technology to Improve Access to Finance 

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

How Can SME Lending Be Future Proof: The FintechOS Approach 

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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