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Post-COVID financial inclusion for SMEs

The latest research from financial infrastructure provider, Banking Circle, gets under the skin of the challenges facing SMEs today. Anders la Cour – the bank’s co-founder and Chief Executive Officer – looks at some of the practical ways in which payment providers can support SMEs in these turbulent times.

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There are over 22 million SMEs in the EU – almost six million in the UK alone. Such businesses account for 99 per cent of EU businesses, 67 per cent of employment and more than half of business turnover. Yet this is the group most at risk from the impact of COVID-19. With a forecasted 8.3 per cent contraction in overall economic activity across Europe for 2020, the risk is potentially fatal for many businesses and devastating for the millions of people they employ.

Small businesses have long struggled to gain access to affordable and suitable banking solutions, especially cross border payments and lending, leaving them financially excluded and their growth stunted. But 2020 has made things worse for these excluded businesses. Access to affordable payments and flexible lending is more important than ever: it will be essential to help smaller businesses through the latest restrictions and nationwide lockdown, as well as in the post-COVID recovery period.

Our latest research looks in more detail at the challenges facing SMEs and describes the ways in which Banks and Payments businesses can step up, make changes and support SMEs to bounce back. 2020 has brought us untold disruption, challenge and sleepless nights, but it has also seen innovation skyrocket. SMEs have adapted, diversified or specialised to suit changing demand and restrictions, and many could come out of the pandemic with a stronger business model than ever, provided they receive the support they need in the meantime.

SME banking challenges

With little cash left in the accounts and government support not always going far enough, SMEs need additional funding to pay rent, utility bills and payroll, not to mention ordering stock so that they can kick-start cashflow. They also need payment and foreign exchange services that are cost-effective. However, unable to provide a long credit history or report consistent revenue, many SMEs are finding that their usual bank can’t help, and they are left unable to gain access to the services they need.

Indeed, our latest research, which investigated the attitudes of SME business leaders across Europe, revealed a significant gap between what they need and the quality of advice and service they receive. Since new regulations and tougher restrictions came into play after the last global recession, banks have found it more difficult to offer financial services to smaller businesses. And the wide range of business models, distribution and ambitions means no two firms are alike, making them more difficult for banks to serve.

One in five (22 per cent) of the SMEs we spoke to waited up to two months for loan application responses, with 25 per cent waiting up to a month. Alongside high fees (42 per cent), SMEs said poor quality service and low responsiveness reduced their confidence in their bank.

Collaborative opportunities

Where incumbent banks are built upon – and often held back by – monolithic legacy systems, FinTechs are built in the cloud. They are flexible, nimble, more able to adapt quickly and launch new solutions to meet the rapidly evolving needs of smaller businesses. We, and other FinTechs like us, are building systems designed from the basic understanding, that technology is ever-evolving and that tomorrow, what was the norm today, may need replacement or an upgrade.

In our latest white paper, we have identified five key areas where improvements could be made to improve relationships and service delivery between SMEs and financial services providers.


SMEs are happy with a digital delivery model, but it should offer more bespoke services, lower cost and improved responsiveness – available through digital platforms and partnering with service providers.


SME choice isn’t always about the price. Financial service providers should think flexibly. Innovative – and tailored – approaches to pricing could help them improve SME services and enhance profitability.


Banks should try to address the inequity SMEs can face when seeking credit compared to big companies through better risk scoring systems. Interoperable APIs now make it possible to access SMEs’ financial information directly.


To win SME trust, banks should seek to combine digital delivery with tiered, personalised services and the human touch.


Quality advice is key to serving the SME market effectively. Starting from the digital platform and partnership model, financial service providers can take things further, adding a layer of personalised advice via email and/or voice to the mix.

Banking in 2021 and beyond

SME needs are indeed extremely diverse; ultimately achieving total financial inclusion for SMEs requires a joined-up ecosystem, where various financial service providers connect their solutions. Making these connections will be vital for global economies as we look to recover from the worst health crisis in a century, and one of the biggest economic shocks in history.

Partnering with specialist providers within the financial ecosystem in a platform or white label arrangement reduces cost and enables tailored services through existing banks’ digital channels. Our research found that 80% of retail banks and 74% of commercial banks have already worked with infrastructure providers.

Financial infrastructure providers like Banking Circle are focused on developing the technology to process payments directly, and to integrate to a vast network of local clearing and payments schemes. Using decoupled architecture, we can easily update or replace individual pieces of architecture with limited impact on the rest – meaning we can quickly add more functionality and work within new geographies. This means we are uniquely placed to give financial services providers the ability to support their business customers with faster and cheaper cross border banking solutions.

As we all know, SMEs are vital – so much so that they are often referred to as ‘the backbone of the economy’, and rightly so. But poor access to payments, lending and bank accounts is putting these precious businesses at serious risk – today more than ever before. Providers of all types need to make changes and work together to serve smaller businesses more effectively and improve financial inclusion.

To find out more about how financial services providers can improve their service for SMEs, download the white paper here: Bounce-back banking: 5 markers for success in delivering SME financial services.

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