New fintech-led trends in the banking area for small businesses

While the pandemic and the digital transformation together have driven many positive changes in the fintech and insurtech industries, small businesses have generally suffered catastrophically. Unable to cope with the costly demands placed on them by closures and forced closures, many of them took out loans to survive.

Now, as inflation rises worldwide, they are fighting a rising tide again. Banks and financial institutions can offer a lifeline, in the form of new products and services, that can ease the challenges of running a small business in challenging times. But what exactly is on offer?

Large Business vs. Small Business Banking Services

A significant difference between small businesses and large corporate banks is that small business owners do not have CFOs or CFOs to manage most financial aspects of running a business, and instead they often act on their gut, according to Rob Straathof. CEO of Liberis.

“Entrepreneurs are good at running daily, running their business and setting the strategy for a business, but when it comes to managing finances, they often need help from their financial adviser or bank.

“Usually the help they need is around managing working capital, getting the invoices paid on time and making sure they have enough liquidity to pay employees and suppliers versus incoming income. Of course, if they need loans, there are a plethora of solutions available to them. but the problem is that they do not have a good enough understanding of what the right products are and whether they are available to them when they need them. “

Roger Vincent, CEO of the UK and Ireland, Trade Ledger, also points out that small businesses have more in common with consumers than large businesses and therefore have an expectation of tailor-made services from their banks.

He says: “They can even manage business economics alongside personal finance, so they expect the same level of digital capabilities that they experience in their personal lives. Fintechs often understand this better than sitting banks – and more importantly, they have the technology and agility to innovate quickly. This means that they can very quickly create new products and solutions that meet the needs of small businesses. “

Products and services for small businesses

Small businesses also have different needs when it comes to support services, and therefore banks that supply products to large businesses will not necessarily fit well. Rather, fintech is generally more suited to helping small businesses because they offer innovative products such as cash flow forecasts, says Straathof, noting that Tide, Xero and Nuula provide cash flow forecasts and immediate access to critical business metrics.

They can bridge the gap to connect lenders with your existing data panels and bank accounts through third-party Open Banking providers such as Plaid and TrueLayer. outstanding, and if necessary help with collection. Kolleno is another excellent example of a fintech that helps small businesses run short-term working capital cycles. “

How to choose the right bank for an SMB

Ultimately, small business owners need to look for the right banking services and make sure they choose a fintech that best suits their needs. Straathof says that the standard functionality must be there, but there are a whole range of questions a company must ask itself. These are:

• Does the bank integrate with Open Banking?
• Does it integrate with your accounting packages?
• Does it have an automated cash flow forecast?
• Do they have sufficient SME lending products?

He points out that many challenger banks do not have SME lending products yet, while “the traditional high street banks often have suitable lending products available, but have a very low appetite for approving SMEs”.

Finding the right banking partner is not yet an easy task. So the question is, which bank fits specific requirements such as Open Banking, cash flow forecasts, integration in accounting packages and business financing?

“These can be difficult questions to answer in advance, but should still be explored. Companies like Liberis are agnostic and can work with many different ecosystems to provide the right financing, to the right businesses, at the right time by using and leveraging the data they have. . “

The future of SMB banking and fintechs

“If we look at the trends in retail, the future looks bright for small business banking,” says Vincent. “Digital services that we see in our daily lives are constantly entering the small business banking segment. We see that financial service providers across the board are investing heavily in improving their products and proposals for the benefit of small businesses.”

Straathof concludes: “A megatrend for the next two years will be a digitally integrated bank with the functionality of a ‘superapp’, showcasing products such as business insurance, accounting, payment requests, invoicing, crypto acceptance, goods, stock monitoring, etc., together with financing options available to businesses at the right time – all in one dashboard. “

He adds: “It requires small business banks to invest in their underwriting practices and ensure that they have an appetite for risk-taking, to support these businesses for their future growth.”

Six new trends in banking services for small businesses

Integration of digital services – A dashboard that integrates with accounting packages and provides an overview of things such as transactions, cash flow, outstanding invoices, submission of tax returns and eligibility for financing.

Speed – Neobanks provides a bank account set up in a few minutes, and traditional banks such as JP Morgan, Investec and Marcus follow the trend. For businesses that need financing, Liberis can be integrated with their bank account and dashboards to provide instant financing that can be retrieved in minutes.

Superapper – PayPal and Revolut are developing omni-services within their existing ecosystems. Through Revolut, users can, for example, take out pet insurance and travel insurance, buy goods and connect to other bank accounts and credit card statements through Open Banking.

Open finance – This provides the ability to collect user data from a number of financial apps in one place. Having all the banking transaction, sales and credit bureau data in a single application means that customers can get a real-time overview of their cash position, capture any new risks for the business or identify working capital gaps before they become critical.

Digital working capital – For too long, small businesses have relied on overdraft facilities or personal credit cards to support their fluctuating working capital cycle. With the emergence of new lending technology, banks, specialized lenders and fintech are creating new frictionless financial products that use real-time data streams to assess their eligibility for a wider range of lending products such as term loans, invoice financing and asset financing.

Built-in economy – The ability for financial service providers or specialist applications to embed their proposals in other third-party channels. This can mean that a small business can access a number of marketplace solutions in its banking app.