Revolutionising SME finance: The imperative alliance between financial institutions & fintech innovators

by James Camilleri, CEO and co-founder of Fyorin

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Global SMEs move away from traditional banking, and to satisfy their financial operation and payment needs, they turn to fintechs and software providers. This is primarily due to the concerns surrounding cross-border payments regarding security, speed, and cost when relying on traditional methods. The overall landscape suggests that SMEs are in dire need of flexible solutions that can scale with them as they expand into new markets. In this article, we will explore why financial institutions and payment organisations should consider joining forces with financial technology providers and fintechs with the aim of helping SMEs around the world streamline their payments and financial operations and grow globally. 

SMBs: The unserved market

SMBs are frequently underserved by the traditional banking system, especially when it comes to providing tailored and innovative products to satisfy their ambitions for global expansion.

Despite their long-standing reputation as a reliable and secure option, traditional banks are not immune to failures or downtimes. This can disrupt daily operations and impede access to essential financial services many SMBs cannot afford during their growth phases. Due to intermediaries involved at every stage of the payment process, conventional methods are also known for slow and expensive international payments. Lack of transparency around fees can harm cash flow and the bottom line. Furthermore, traditional banks have a disadvantage when it comes to onboarding and providing hands-on support to global businesses. Due to the size of their operations, SMEs often struggle to get the answers and support they need in a straightforward and timely manner.

In terms of supporting SMEs’ ambitions for global expansion, each bank has limited access to different currencies and partners in other countries. This means that with every move to another country, SMEs need to navigate compliance and commercial processes, which are operationally inefficient and costly. 

Another area where the traditional banking system lags behind is providing access to innovative financial products and services. Slow to adopt cutting-edge technologies, they offer limited solutions to solve major financial operations pains, such as APIs, virtual cards, and seamless connectivity with accounting software. This lack of innovation hinders SMBs’ ability to streamline their financial processes and remain competitive in the global market.

SMBs continue to be underserved by traditional banking, as evidenced by the examples above. As a result, they are distrustful of traditional banks and seek more tailored, innovative solutions provided by financial technology providers.

The benefits of collaborating with financial technology providers

Financial technology providers have a unique way of serving small and medium-sized businesses. The first advantage is that they can leverage their financial institutions and payment provider partners’ licensing capabilities, making transactions more efficient and cost-effective. Additionally, it eliminates the hassle of finding new financial institutions as the business grows and scales by unifying compliance and commercial processes. In addition, financial technology providers offer a number of products under one hood, from API connections that allow them to connect payment infrastructure directly to their workflows to cards, payables, and more. 

Financial tech providers position themselves in an innovative way, refraining from direct competition with traditional banks. Rather than building another challenger bank, they transform the way you, as a financial institution, can serve your clients and deliver greater, even greater value. 

All businesses require a banking relationship, but due to the size of the market and the constant changes in regulatory compliance, financial institutions cannot innovate to satisfy the financial operational needs of SMEs. As a result, SMEs seek out additional banking relationships along with their primary ones. 

The business models of most banks depend on deposits to fund lending – interest margins are their primary revenue generator. However, the increasing competition has now driven banks to generate revenue from non-interest avenues, drive technological innovation forward, and move quickly. This is no easy task, especially in a world where banks face challenges both from regulators and Fintech companies who don’t have to adhere to the same compliance constraints as banks.

By partnering with a financial technology provider and joining their network of financial institutions, you can diversify your non-interest revenue and increase revenue from core products. This collaboration can help you leverage the capabilities of other partners to quickly launch innovative financial products and reach new audiences, including SMBs. By doing so, you will increase your core product stickiness, increase the lifetime value of your clients, and gain end-to-end transactional visibility of your customers, which is essential for compliance.

Final word

The evolving preference of global SMEs towards more flexible and scalable solutions over traditional banking methods highlights the urgent need for traditional financial institutions and payment organisations to collaborate with financial technology providers. This collaborative model not only helps SMBs but also enables banks to diversify revenue streams, drive technological innovation, and swiftly launch innovative financial products. In a competitive market marked by regulatory constraints and fintech disruption, this mutually beneficial relationship presents a promising path forward. It enables both traditional financial institutions and fintech providers to serve the needs of SMBs better and thrive in the rapidly evolving financial ecosystem.

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