During 2017, we have seen numerous advances in technology and the introduction of new regulatory policies that are reshaping SME Banking. Despite still being an underserved segment of sorts, digitalisation, machine learning and open APIs have opened up previously unimaginable opportunities for banks to get closer to the SME customer.
While no one can see the future, we asked SME Banking experts to share their predictions with us. Here’s a preview of what the best in Fintech have to say about the coming year in SME Finance Management.
Samuel O’Connor, Coconut
"SMEs have traditionally been lumped into one category together. But the needs and desires of a freelance designer compared with those of a 200-employee company are completely different. This traditional segmentation has left certain groups, like freelancers, out in the cold and forced to make do with products that are designed for bigger businesses. Technology is shifting the economics of business banking by reducing acquisition costs and enabling new products that solve more complex problems, like tax. And this is creating new revenue opportunities. I see a shift away from transaction revenue models (loans, FX) to value-based products that solve problems and create massive benefits for forgotten groups in the small business segment."
Jay Singer, MasterCard
"SMEs are a relatively untapped revenue source for banks, who haven't fully stepped into this role historically. They have a unique set of needs around buying, operating and selling, and banks are beginning to tap into the opportunities they offer, particularly now, in 2018, thanks to regulatory changes (PSD2/Open Banking), revenue challenges, strong economic conditions and technology. I believe that SMEs view the bank as a trusted advisor to help them manage their business, so with a holistic, coordinated segment perspective that will leverage new technology, such as BFM, banks can start to address their needs and benefit from this segment going forward."
Matthew Gamser, SME Finance Forum
"The SME finance world is changing profoundly. Until now, the only way we could understand what was happening in an SME was to visit them in person, but today we can get the information we need by taking advantage of new electronic data streams, transforming the SME segment from a problem, into a real opportunity.
There is still a lot of old technology that slows the banking system and limits financing and global market access for SMEs – in particular, our SWIFT system (based on telex of the 1970s) for cross border payments, and our trade finance system, based on extensive use of paper documents, which has barely changed from its invention in the 14th century. I predict important changes in both systems within the next 5-10 years. My advice is don’t place a bet yet, and certainly don’t bet against the competitor from the East! Regardless of how the competition ends up, we’ll be in a vastly improved situation for those who move relatively small units of value around our SME sector."
Pau Velando, Strands
"While it's true that banks do not have as much data relating to their customers as Amazon, Netflix or Facebook, and despite the fact that AI has not become mainstream, the extent to which Fintech companies are changing the processes is undeniable. The only reason why this is still the case, is because of the challenge that training the system poses, due to the scarcity of data that banks have at their disposal.
While banks are far from being able to deploy AI systems that provide autonomous, accurate and relevant advice to their SME customers (the same for retail customers), there’s a lot that can be done with the use of Machine Learning - ML - solutions being trained in not-so-big datasets. Banks can deliver a lot of value to their SME customers by training their systems on focused, highly contextualised spaces, for example on predicting delays in payments, or establishing patterns and likely scenarios, based on solid transactional information."
Minerva Kotei, SME FINANCE FORUM, IFC
"Financial Services providers will continue to explore new opportunities to reach underserved markets in their quest to increase market share. There is momentum in the growth and opportunities in the women’s market which is expected to attract increased capital and financing. A recent report by the World Bank Group and SME Finance Forum estimates the finance gap for women owned SMEs at $1.5 trillion.
Going forward, the growing number of women owned SMEs is expected to drive SME banking. We will see more financial service providers, including banks and fintechs, leveraging technology to develop innovative solutions to meet their financing needs. The increased financing to women owned SMEs will drive sustainable economic growth in markets with enabling business environments."