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Why have SMEs been underserved by the payments industry?

by uma
Editorial & Advertiser disclosure

By Gary Prince, Chief Strategy Officer at SimplyPayMe.

The lack of products specific to SMEs is one of the sector’s biggest challenges. Historically, SMEs have had to ‘make do’ with scaled-down products derived from larger business sectors or consumer products, which have been given a slight ‘business twist’.

However, SMEs make up more than 99% of the UK business population and play a considerable part in the payments industry. With small to medium sized businesses being so integral to the economy’s health, how are banks not jumping on this rising industry opportunity?

Today, flourishing prospects and a digital-first future are on their way, as the industry is finally being heard for the first time.

So, what is wrong with SMEs’ banking and payments sector?

The simple answer is that SMEs are not considered to be a profitable market. Why? Because Basel III’s “Global Regulatory System for Banks” makes it mandatory for SMEs to hold twice as much capital as any other sector when applying for a loan.

Although the situation is understandable on a financial level, it has resulted in an underserved sector. With little ability to provide the capital, traditional banks find it challenging to secure SME financing. Thus, banks are less inclined to create SME-specific products and services, favouring consumer and corporate markets. 

The lack of investment in SMEs has resulted in the absence of basic infrastructure, with a struggle to access capital and services to scale, expand and function daily. The primary and most essential services have not yet been implemented. 

This comprises:

  • Rapid, fuss-free onboarding
  • Transparent decision-making
  • Customised products and services
  • Low-cost transaction rates

Moreover, where access to credit has been available, it has been slow. And when there has been an offer, there has been no option for personalisation or plasticity. This results in businesses adapting to banking offers they don’t want rather than finding products that suit their needs. 

Why are more financial institutions catering to SMEs now?

Unfortunately, these are not new problems – SMEs have always faced financing and banking issues, which have remained unchanged until recently. What changed?

Since the global economic downturn in 2009, SMEs have played an increasingly important role: facilitating change and modernisation within the banking industry. Because of this, most fintech and payment enterprises now fall within the SME sector. 

So, while change isn’t entirely driven from within, banks are realising SMEs’ undeniable value, as small innovative tech companies are taking matters into their own hands by creating products and payment solutions they need.

This is the case for SimplyPayMe. The award-winning global payments company’s mobile application provides everything a sole trader or small business requires to successfully operate their enterprise on a daily basis. 

SimplyPayMe understands small businesses’ needs and tailors their application accordingly. With its disruptive technology and fully-fledged payment and invoicing tools, SimplyPayMe’s cloud-based platform provides a thorough mobile payments infrastructure, enabling small businesses to run their companies and get paid, all from a single application.

However, traditional banks and financing institutions are starting to feel threatened by the upstarts in the industry. Most fintech enterprises are creating products aimed to serve banks or at least facilitate collaboration; others are incurring the previously sacrosanct territory.

As a result, more alternative financing solutions are making their way into the market, with banks having to work harder than ever to secure their clientele.

Change in the financial service industry is  ​​indisputably in full force. Still, for some, it is not happening fast enough.

There is still a long way to go for SMEs to benefit from the banking and payment experience. Why is this?

Today, SMEs and fintech companies are well on their way to becoming pioneers of digitalisation, elaborating and providing a wealth of solutions. Unfortunately, this is not the case for mainstream banks that are cautious about implementing change.

Of course, industry regulation is essential, although it also tends to impede innovation, with traditional financial institutions struggling to implement new processes and avant-garde technology. 

Finally, the financial sector has underserved SMEs for decades. Today the demand is well on its way, and progress is more apparent. Adding to this the effects the Covid 19 outbreak had on the financial sector, it has undeniably had to change its ways, shaping how SMEs use digital tools. Regrettably, traditional banks are still not catering to the higher demand, driving SMEs to alternative solutions. So, while we are yet to see a true sector transformation, the process has clearly started. 


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