SMEs, small to medium sized businesses, have historically had an uneasy relationship with the banking sector. Ranging from individual sole traders, to companies with hundreds of employees and millions of pounds in revenue – SMEs as a sector are populated with organisations that are fragmented and have very little in common. From corner shops in villages to digitally savvy tech startups, it has been hard to fit SMEs into a silo.
Customer groups that fail to fit neatly into a silo tend to be underserved or even ignored by a financial system that yearns to offer products, developed by segmented teams, organised into salary bands and carefully constructed bonus and budgetary structures.
However, over the past decade the modern FinTech revolution sought to smash silos, create new business models and reach customer groups that have been ill served by the status quo. The poster child for that lack of service could easily be filled by SMEs.
It was under that topic – How do you solve a problem like SME banking? – that 25 players in the banking and FinTech company space gathered for coffee, tea and pastries in early July to hear from our speakers and discuss amongst themselves the changes and opportunities in our industry. Sponsored by Charlie India, our roundtable heard from:
- Paul Loberman, Global Head of Streamlining and Automation at HSBC – Previously, Global Head of Digital – Retail Business Banking at HSBC
- Gergely Tyukodi, MD, OTP eBiz and senior manager in Corporate Division at OTP Bank
- Katalin Kauzil, co-founder, Charlie India
SMEs often fell into a grey area for traditional banks, needing a higher level of sophistication than retail offering, but not large enough to be offered more robust corporate services. However, the roundtable highlighted several turning points in the industry.
New entrants into this space have started offering SME friendly products such as lending, business banking services and accounting and invoicing functionality. Well-known names such as Tide and business offerings from challenger banks such as Starling and Monzo in the UK were mentioned as well as SME lending activity from big tech in the APAC region.
While retail banking customers are lured to new services via marketing and word of mouth and large corporates rely on a team of relationship managers – the SME space is often reached via their accounting firms. Cloud accounting services was painted as a Trojan Horse – allowing access the market with new offerings.
The second major discussion point of the roundtable focused on collaboration and partnerships. Hosts Charlie India, a technology provider of invoice related services and OTP Bank recently partnered to offer these services to the bank’s SME customers through it’s subsidiary called OTP eBiz.
While the Hungarian Bank, at first, also considered acquiring the FinTech startup outright, but a more FinTech friendly partnership option was eventually agreed on. OTP’s SME e-invoicing touchless invoice processing services, linked to banking transactions via their accounting software was built on Charlie-India’s white label invoice data exchange platform. Today the service, offered by OTP eBiz, has around 20,000 clients and 10% use it daily.
The collaboration with Charlie India made the implementation process easier and faster to integrate new services. This strategy of collaboration on the technology level with other market players (banks and accounting softwares) is seen as a defence against the march of Big Tech in financial services. Banks need to partner with new technology enablers/FinTech entrants – it is harder and slower to provide and develop these products alone.
The discussion around partnership and collaboration started a spirited debate around the culture of pilots and proof of concepts between banks and new FinTech entrants.
Ultimately, the key to understanding and better serving the SME market is gaining a better understanding of who these business owners are.
Banks and FinTech companies need to ask SMEs:
- What do you do?
- What are your goals?
- What are your aspirations?
- How can we help you achieve those goals?
Many owners of very small business have been high net worth individuals, often they are premier banking retail customers. Much more than large corporations, SME owners often work and live with blurred lives between the business and their personal lives. Helping these entrepreneurs separate their personal and business financial lives is a key element to supporting the SME market.
Often administrative requirements can cause headaches for small business owners, who often complain about spending too much time on admin and not enough time growing their enterprises. This point harks back to an earlier discussion point at the roundtable that targeting accounting firms, which support many SME admin functions, is key to reaching this market segment.
The TECHTalents Society is a regular gathering of peers to discuss industry topics over coffee, tea and breakfast in a roundtable setting. Keep up with us for future roundtable events.