New financial technology developments have the potential to fundamentally reshape the way SMEs not only bank but manage a variety of key aspects of their businesses.
Sole traders and SMEs alike will benefit from many of the enhancements focused on retail banking, including better online and mobile user experience, quicker account opening and product access, and fast, automated borrowing. Additionally, both sole traders and larger SMEs will see enhanced integration options between bank accounts and internal accounting systems, especially widely used accounting packages like Sage, Quickbooks and Xero.
Medium-sized and larger SMEs with more complex financial needs and in-house finance or accounting functions will see a wave of changes in the way they bank in the coming years.
Over the next 10 years, expect dramatic changes across SME banking & financial management, especially in:
• order reconciliation
• payment authorization
• spend tracking
• term borrowing
• working capital management
• trade finance
• invoice discounting
• cash management
Within the next 3 years, look for:
- Mobile banking that leverages the native components of mobile devices.
- Biometric ID verification for safer, more secure account access and payment execution, and the disappearance of the archaic password + PIN + telephone PIN + memorable information + card reader + key generator + … model.
- Remote payment authorization escalation via smartphone alert, based on internally defined user permissions.
- With the advent of open bank APIs and real-time payment & transaction information, bank accounts will be increasingly integrated into accounting systems to provide real-time financial positions, payment reconciliation and automated cash management.
- Banks will increasingly use predictive analytics to more effectively price credit.
- As new entrant banks come to market and incumbent banks overhaul legacy systems, a real-time unified customer view will become the norm, allowing bank staff and customers to see, based on permissions, a consolidated position across all aspects of an SMEs banking relationship, including owner/director personal accounts if necessary.
- The availability of a unified customer view will enable relationship managers to provide more meaningful advice to SME customers, more quickly resolve problems and ensure customers have access to the most suitable products across the bank.
- The initial emergence of platforms attempting to aggregate product offerings across multiple banks with automated switching capabilities.
- The continued use of peer-to-peer and marketplace finance alternatives, including for term borrowing, short-term credit, invoice finance and commercial mortgage lending.
Within the next 3–5 years, expect:
- By combining open APIs and real-time data availability, banks will start to offer more intelligent, just-in-time and ongoing credit scoring using financial and non-financial data, allowing lenders to better manage credit risk and offer better rates and terms to customers. Similarly, banks will experiment with pushing just-in-time credit to customers as borrowing needs arise.
- Banks will help customers unlock the value of their data, enabling them to make better purchasing and operational decisions and reduce costs through tailored vendor offers.
- Banks that are currently being forced to build PSD2 compliant systems for retail use will extend those capabilities to SME customers in order to monetize costly, mandated system enhancements.
- The product aggregation platforms that began to appear in years 0–3 will start to gain traction as credit options for small SMEs with simple banking needs.
- Banks will incorporate elements of marketplace finance to provide short-term credit and invoice finance for businesses they choose not to service directly.
- FX will be disrupted, with commissions and fees falling dramatically for SMEs.
Within the next 5–10 years, we’ll likely see:
- Better supply-chain management with the advent of the IoT leading to changes in the way trade finance is done. Smart devices will provide real-time information about inputs and products up and down the supply chain, enabling just-in-time inventory management, smart, automated working capital provision, and more precisely priced credit and insurance translating to lower interest rates and premiums for SMEs.
- Component-driven banking, with bank product suites broken into component parts for direct integration into business systems, supporting intelligent financing, payments, and cash management.
- A changing payment processing landscape, with monopolistic/oligopolistic organizations/segments like payment and card networks being broken up, resulting in cheaper payment processing for SMEs.
- Potentially, emerging alternatives to central bank-issued currency, including possibly digital currencies or non-currency stores of value (data, other tokens/credits).
The pace of change is increasing, and the results will be exciting to see.
For Part 2, click here.