UNLOCKING SME GROWTH HOW FINTECH CAN REVOLUTIONISE SMALL & MEDIUM BUSINESS FINANCE

Over time, banks have tried to offer several products and services to small and medium-sized businesses (SMEs) but struggled to tailor products that meet their specific needs and to find a way to crack the SMEs segment, despite SMEs being an essential part of any economic growth.

Fintech has started to recognize the needs of SMEs and can fill the gap by offering innovative solutions that meet the needs of these small businesses. According to the World Bank, “SMEs represent about 90% of businesses and more than

50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies”. There are many opportunities, challenges, and benefits that many Fintechs will face when targeting innovative solutions for SMEs. The region’s trend of Fintech ventures has focused on consumers, but now is the time to focus on SMEs, with services such as lending, invoice financing, supply chain financing, and trade financing. Combining customer service, technology, and tailored financial products will ensure the new wave of Fintech growth is flourishing. Fintech must have a good use case to meet the needs and to be crafted with SMEs in mind and provide them with a solution to the challenges SMEs face, whether due to limited resources or knowledge of the regulation within each country.

Fintech can be essential in impacting and serving SMEs, as the sector is ready for the next wave of growth in the coming years. However, with this growth, Fintech companies must commit to providing secure and reliable services to gain trust. The next wave of Fintech solutions and services to SMEs will focus on the following:

1 Lending: Fintech companies can provide SMEs with alternative lending solutions, such as peer-to-peer lending and online loans, with different tenures tailored to each business sector.

2 Invoice financing: Fintech can tailor solutions to enable SMEs with the financing capabilities and tools to finance their unpaid invoices, allowing them to access the cash tied up in their accounts receivable.

3 Supply chain financing: Alternative financing options and tools to manage cash flow and get additional benefits from suppliers by paying one time.

4 Trade financing: Alternative financing options for international trade, such as letters of credit and export financing.

Significant changes that Fintech will bring to provide a unique selling proposition in serving the SMEs:

1 Faster access to funding: SMEs will get speedier access to funding than traditional banks.

2 Alternative forms of lending: These will be tailored to SMEs individual needs.

3 Lower costs: Providing lower costs of services and enabling the digital transformation benefits versus traditional banks.

4 Increased efficiency: Fintech will provide different digital tools and platforms that increase efficiency and automate processes.

5 Improved data analysis: SMEs will have access to data analysis tools and insights to help them make betterinformed business decisions, which have been the focus of traditional banks.

Many government initiatives focus on providing SMEs with access to funding and other resources to help them grow and enable SMEs with digital transformation. Enhancing the technology provided in SMEs will create a new opportunity for Fintech due to its limited resources and investment in digital transformation, providing an opportunity for Fintech companies to offer digital solutions. An additional option for Fintech companies is that the government focuses on SME growth, which can assist in providing subsidised funding for SMEs if Fintech successfully delivers tailored solutions. Additionally, there is a large and underserved market for alternative financial solutions among SMEs. The government has different programs to assist in growing and developing SMEs, which could increase the country’s overall gross domestic product (GDP).

There are several challenges that fintech companies need to tackle to serve SMEs, but the first one will be convincing SMEs to trust the new financial solutions and education, especially from untested fintech companies. To overcome this challenge, fintech companies need to build trust by providing precise product education and transparent information about their products and services. An additional challenge will be the limited financial data produced by SMEs, which can be a significant challenge for fintech companies. With access to limited data produced by SMEs, fintech may need help to assess the creditworthiness of SMEs, which will limit the types of products. Fintech companies must closely work with SMEs to collect and simplify data by developing digital tools that can help them assess credit risk. Another challenge that fintech needs to tackle is the regulatory environment, which requires Know Your Customer (KYC) and Anti-Money Laundering (AML). SMEs may need good bookkeeping to comply with these regulations, which can make it challenging to fulfil their KYC and AML obligations. Fintech needs to work with SMEs to develop digital tools for data availability and collection.

In conclusion, fintech can drive SME growth and is well-positioned to drive the next wave of growth by helping SMEs with financial services. Combining technology and finance, fintech can offer quicker, more accessible, tailored solutions and secure service access. Fintech services will significantly impact SMEs by providing them with several financial products and services previously only available to larger companies. The tailored digital lending platforms will enable SMEs to access funding easily, manage their finances, and grow their business by reaching new customers. Additionally, fintech services can help SMEs to increase efficiency by automating processes and accelerating digital transformation. Fintech must continue to address data collection, security, and regulation challenges when providing services to SMEs to successfully underserved SME markets. Fintech will be well-placed to play a vital role in the growth and success of SMEs, especially with the increasing adoption of digital technologies and the need for more accessible financial services. Fintech still has a long journey, and it will continue to innovate to meet the SMEs’ requirements and the market, making it an essential partner for SMEs’ success in the future.

Khaled Elgoghel

Fintech and digital transformation expert

Khaled Elgoghel is a seasoned professional specialising in closing the gap between technology, finance, and business needs. He is an expert in formulating a strategic plan to facilitate business growth, steer strategy in the digital age, and revolutionise the status quo. He has over 22 years of experience combining the corporate role with entrepreneurship in driving positive change and helping organisations thrive in today’s rapidly evolving business landscape.