Small Business, Big Change: FinTech’s Impact on SME Finance

As the gig economy burgeons, transforming the landscape for startups and freelancers, a spotlight shines on the critical role of small-scale business transactions and banking requirements. SMEs (Small and Medium-sized Enterprises), the unsung heroes of the global economy, make up a whopping 90% of global businesses and employ over half the world’s workforce (thank you, World Bank, for the stats!). They are the epicentres of innovation, growth, and job creation. Despite their pivotal role, SMEs often find themselves in the banking world’s blind spot.

How FinTech Is Rewriting the SME Rulebook

In the world of FinTech, a sector brimming with potential and poised to revolutionise the way SMEs and startups handle their finances, traditional banking, with its colossal structures and seemingly endless resources, has often fallen short in catering to the nuanced needs of these smaller entities.

A striking fact surfaces in the realm of business banking: banks allocate a mere 20% of their business banking budgets to their work with small and medium-sized businesses. This data, highlighted by thefinancialbrand.com, points to a significant gap in the financial services industry. Smaller enterprises often remain overshadowed by larger corporations. Yet, this imbalance creates a prime opportunity for FinTech firms. Their nimble, data-centric approach enables them to exploit this gap, offering innovative and tailored financial solutions where traditional banks have fallen short.

The strength of FinTech lies in its ability to translate raw data into meaningful and actionable insights, a feat that traditional banks often struggle with. By leveraging cutting-edge technology and digital financial tools, FinTech firms are empowering SMEs to make informed decisions, optimise their financial operations, and explore new avenues for growth.

“Moving into 2024, ‘access to good digital solutions’ will supersede ‘reputation’ as a driver of main business bank of choice, suggesting financial institutions who wish to grow must evolve their propositions to meet these specific needs” – according to RFI Global.

Who’s Afraid of a Little Complexity? Not FinTech in SME Finance

In the Kafkaesque world of banking bureaucracy, SMEs with complex ownership structures find themselves in a daunting landscape. Such businesses, which may involve various international departments, subsidiary companies, and multiple layers of leadership, including corporate officers, shareholders, and Persons of Significant Control (PSCs), present a unique challenge in identifying ownership​​.

Traditional banks, despite their vast resources, are often ill-equipped to handle these complexities. The quest to pinpoint the real decision-makers is like a needle in a haystack, bogged down by paperwork and one-size-fits-all approaches.

In contrast, innovative FinTech companies tackle these complexities head-on. Rather than shying away, they seize the opportunity to redefine financial services. With a focus on bespoke solutions, firms are at the forefront, reshaping the financial landscape to meet the distinct needs of SMEs. They offer not just financial services but a transformative approach that combines technological prowess with a deep understanding of the unique challenges faced by these businesses.

Revving Up the FinTech Pricing Engine for SMEs

Now, let’s talk about money – the pricing of financial services, that is. According to FinTech company Payrow, SMEs are hitting a wall with financial service pricing. Traditional banks are like exclusive clubs, setting high bars for turnovers and transaction amounts, leaving rising businesses out in the cold.

Then there are the giants, with their pricing structures resembling a labyrinth. Sure, you get the basics for free, but do you want the fancy features? That’ll cost, and for SMEs craving the full suite, the price tag can soar. Pay-as-you-go models? They’re like roller coasters for finances – unpredictable and often pricier for the busy bees of business.

Flexibility is vital in innovative FinTech pricing strategies for SMEs. Companies with different transactional needs find a variety of plans available. High-flyers with fewer transactions can enjoy low subscription fees, while transaction-heavy businesses benefit from minimal transaction costs.

Businesses can switch plans seasonally, aligning with their financial needs. Transparent pricing and a trial run ensure predictable costs. No deposit or withdrawal limits and reduced commission rates make this approach effective for SME management.

5.48 Billion Reasons Why FinTech Is the Future

The FinTech market is set for explosive growth, powered by lower costs and increased flexibility. With smartphone usage soaring and digital banking in demand, a user surge is expected, with an astounding 5.48 billion people making digital payments by 2027, according to Statista.

This growth is fuelled by several key drivers: widespread smartphone and internet adoption, making digital solutions more accessible; a shift towards digital transactions accelerated by the COVID-19 pandemic; regulatory changes levelling the playing field for FinTech firms; and technological advancements in AI and blockchain sparking further innovation.

Expect to see continued rapid expansion in the FinTech sector, with digital payments leading the charge. Consumers are increasingly opting for the convenience of mobile payments while digital investment platforms gain popularity for online finance management. The rise of digital assets and neobanking will also play a significant role in reshaping the financial landscape.