This piece was dropped in The Scotsman by a senior at Mambu, the Berlin-based fintech delivering a BaaS platform to various industry participants. Although SMEs are in the title, the article’s focus is more directly on small businesses. For readers who try to keep pace with this very diverse segment, SME represents ‘small and medium enterprises’, which has various definitions, some of which we recently described in member research on the U.S. middle market. Small businesses themselves have various definitions as well, so these two segments combined (SME) have in the range of six business-size breakouts, with further segmentation by vertical. The piece is supported by a downloadable global survey summary which does not delineate business sizes, but in reading through the summary findings, it would seem that small business the main focal point (generally businesses with <$10M in annual revenues).
‘The money moves of Silicon Valley giants may grab headlines but it’s small and medium enterprises (SMEs) that are the foundation of the global economy. SMEs represent 90% of businesses…around the world and, in emerging economies, formal SMEs contribute up to 40 per cent of national income. They also employ the majority of the world’s workforce – according to ILO, representing more than 65 per cent of employment worldwide.’
In any event we don’t disagree with the author’s points and conclusions as they apply to small businesses, where lots of bank funding shortcomings have been exposed over the past several years, hence the growth in non-traditional lending, most recently the frenzy around BNPL. Other than being more precise as to the specific target of the survey, which would further underline the point (once you get up into the real middle market, funding issues are very different), there are some worthwhile points for banks to absorb.
‘SMEs present a huge opportunity for traditional banks and other lenders but many aren’t addressing their specific and modern needs. Outdated lending processes and rigid criteria are getting in the way of growth and entrepreneurs and lenders are losing out…
The future for both lies in transforming SME lending with digital tools that make loan management easy, streamlining loan applications and offering flexible terms that take SME characteristics into account. If lenders can serve small businesses like this, they can create new revenue streams and compete with emerging challengers.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group