SMEs are at the heart of our economy and financial institutions need to do more to help them. It has been found that they play a central role in financial inclusion, representing around 90% of businesses globally and more than 50% of employment worldwide, according to an update shared with Crowdfund Insider by the BankiFi team.
The mass adoption of innovative financial products highlights the ability that technology delivers to facilitate meaningful and positive change within the world around us. However, while great change has been engendered in the field of personal financial inclusivity, a similar problem persists within the world of business, an area that is often overlooked in terms on financial inclusion. Specifically, SMEs continue to find themselves underserved by traditional financial institutions – a situation that benefits nobody.
Embedded banking specialists, BankiFi are approaching the topic head-on, and its Chief Product Officer, Marijke Koninckx is publicly addressing what needs to be done.
Marijke from BankiFi has shared insights covering the need to equip SME customers with the tools they need to run their businesses with the adoption of new technologies, such as embedded banking. These solutions are enabling traditional financial institutions to take an ‘outside in’ approach, engaging with customers in new and more meaningful ways rather than taking a ‘one-size-fits-all’ approach.
Our discussion with Marijke Koninckx is shared below.
Crowdfund Insider: What does the current global landscape look like in terms of financial inclusion?
Marijke Koninckx: Over the past decade, we’ve watched the global community take great strides in improving levels of financial inclusion across all corners of the world. With the improvements, 76% of adults now have access to a bank or mobile app, which is up from 51% in 2011. Better still, much of this uptake has occurred in the world’s poorest regions; this to me, signifies that we are certainly heading towards a more financially included world.
Financial inclusivity, however, is not simply defined as increasing the accessibility of banking services to unbanked areas of the world. Small and medium-sized businesses (SME) have continuously been underserved by banks, with services that the SME could take advantage of being available only to larger and more established businesses. Yet, this is starting to change, and we are now amid a positive shift towards a more financially inclusive world.
Crowdfund Insider: What has underpinned the shift towards a more financially inclusive world?
Marijke Koninckx: In recent times, banks and financial institutions have begun to democratise their services and platforms; allowing them to become more accessible to SMEs It is thanks to technological advancements that this is possible. We see some clear evidence in the market today: for example, more consumers have access to investment products today because of technology enabling them to do so more easily. Similarly, technology can now unlock services previously only accessible to large corporates, helping small businesses to thrive in new and exciting ways.
Simply put, these technologies have removed many of the entry barriers associated with traditional financial services, and they have the potential to help millions of small businesses leapfrog their way toward financial inclusion, crucially regaining parity with larger or more established organizations.
There has been a continual rise in the adoption of these pioneering financial products, which really drives home the message that technology that makes our lives easier can facilitate meaningful and positive change within the world around us.
Crowdfund Insider: From a consumer standpoint, it seems as though we are moving in a positive direction. What does it look like from a business’s perspective?
Marijke Koninckx: Financial inclusion is often overlooked within the world of business. Specifically, small-to-medium-sized businesses (SMBs) continue to find themselves underserved by traditional financial institutions, which is a situation that benefits nobody.
SMB’s play a central role in financial inclusion as they represent around 90% of businesses globally and more than 50% of employment worldwide. Despite this huge contribution to economies around the world, there remains an alarming disparity in the level of service SMBs receive compared to their larger counterparts. Right now, as we are in a moment of economic uncertainty, it’s essential that changes are made to allow SMBs, who are at the heart of our economy, to get more value and control from their banking relationships.
Crowdfund Insider: Why do you think SMBs find themselves underserved by traditional banking partners?
Marijke Koninckx: Expanding on my earlier points, there are several reasons why SMBs have found themselves underserved by traditional banking partners, with the most glaringly obvious being the high barriers of entry associated with business banking.
Whether at the point of sign up or when applying for specific financial services, traditional financial institutions often require a considerable amount of information about a business and its financial activities. Providing this information can end up being a very time-consuming and laboring exercise, especially for businesses that don’t have a dedicated compliance or administrative team.
Because of their size, SMBs are less likely to have these teams at their disposal, and at the same time, they can’t easily leverage their business banking relationships as much as larger businesses. This phenomenon is possibly best demonstrated by the significant funding gap between SMBs and larger companies. According to reports, the lending gap between these two forms of businesses currently stands at $5 trillion in the US, and €730 billion in Europe, with the gap continuing to widen.
Simultaneously, banks are unintentionally overlooking the real needs of SMB owners by assuming the size or nature of their business does not require services that are typically available to larger businesses. This is not simply because of a lack of willingness or know-how, but servicing SMEs in the same way in which larger businesses are served – which is very much based on relationship management – is not scalable due to the sheer number of SMEs out there.
Whilst there is a difference in terms of complexity and scale, SMBs and larger businesses do have very similar needs when it comes to managing their businesses’ cash flow despite a requirement for different approaches to solving these issues.
Crowdfund Insider: How are Fintechs working to relieve these pain points for SMB owners?
Marijke Koninckx: There has been a wave of disruptive Fintech businesses entering the sector recently, offering speed and convenience and ability to bundle together the services that SMBs truly need. This is a distinct difference to the way that traditional financial institutions currently operate.
The success of these new solutions clearly demonstrates the immense demand that exists for services that genuinely impact and improve the lives of SME owners, wherever they are in the world.
What Fintechs have achieved has helped improve efficiency, lower transactional fees, and improved customer and resource outreach – all things important for small businesses and areas that traditional banking had overlooked.
Crowdfund Insider: Do you think these companies could ever replace traditional financial institutions?
Marijke Koninckx: The financial clout of traditional financial institutions is unparalleled, and their ability to navigate periods of economic downturn is simply unmatched.
What’s more, they still hold immense trust from customers, something that is a big decisive factor for users choosing where to hold their capital. However, the question is whether they’re willing to rise to the challenge, and to engage SMB customers in a way that they truly respond to. If managed correctly, a world of SMB banking opportunities will reopen for legacy banks, which is a win-win for all parties involved.
Crowdfund Insider: How can traditional financial services and Fintech co-operate to help SMBs?
Marijke Koninckx: By working together, fintechs and banks can help equip SMB customers with the tools they need to run their business. Thankfully, new technologies, such as embedded banking are making this possible, and enabling traditional financial institutions to take an ‘outside in’ approach, engaging with customers in new and more meaningful ways rather than taking a ‘one-size-fits-all’ approach to product development.
Furthermore, by leveraging developments like Open Banking and PSD2, traditional financial institutions can dramatically streamline the processes required for SMBs to gain access to much-needed services and solutions. In doing so, banks could quickly put themselves in pole position to claim the ‘front door’ of digital services for SMBs and beyond. In turn, we may finally reach a point where SMBs can access everything they need via a single vendor.
Crowdfund Insider: What is BankiFi doing to help support SMBs?
Marijke Koninckx: Against a worsening economic climate, and growing concerns of a recession, the need for tailored SMB banking services is critical. Now is the time for traditional financial institutions to step up and deliver small business owners the tools they need to survive by leveraging technology that is readily available.
Here at BankiFi, we’re one of the many companies committed to that effort. Since our formation, we’ve worked to help banks provide a better set of integrated services, such as accounting, invoicing, and payments to all manner of customers, including SMBs. As we enter 2023, this shift feels closer to happening than ever before. With a few subtle tweaks in attitude and the adoption of an ‘outside-in’ approach,’ SMB businesses will be given more opportunities to truly thrive.