Throughout the years, small businesses and sole traders have faced many challenges. One of the most prominent is the need for customised financial services. Regrettably, SMEs have to "make do" with trimmed-down products originally meant for larger businesses.
SMEs make up more than 99% of the UK business population - Being so integral to the economy's health, how are they neglected?
The simple answer is that they are seen as less lucrative than larger corporations. This is because Basel III's "Global Regulatory System for Banks" requires SMEs to hold twice as much funds as any other sector when applying for a loan, thus, stunting any possible growth and resulting in an underserved industry.
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.
Lack of SME-tailored services
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 still need to be implemented.
- Rapid onboarding
- Transparent decision-making
- Customised products and services
- Low-cost transaction rates
Further, 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. As a result, businesses are adapting to 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.
The Banking Sector VS SMEs
While change isn't completely driven from within, banks are realising SMEs' value, as small innovative tech companies are taking ownership by creating products and payment solutions they need.
For example, SimplyPayMe - The award-winning global payments company’s mobile application provides everything a sole trader or small business requires to successfully operate their enterprise daily.
With this disruptive technology and fully-fledged payment and invoicing tools, these cloud-based platforms provide a mobile payments infrastructure, enabling small businesses to run their companies and get paid, from a single application.
Thus, 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 unquestionably in full force. Still, for most, it is not happening fast enough. Today, SMEs and fintech companies are on their way to becoming digital pioneers, creating an array of solutions. Unfortunately, this is not the case for mainstream banks that are wary about implementing change.
Finally, there are definite positives for SMEs. Although far from perfect, the banking sector has slowly started to change, with the hope of seeing a transformed and modern industry in the next ten years. In the meantime, agile and innovative fintech firms and SMEs will bridge the gap in payment service providers.