KEY POINTS

  • Small- and medium-sized businesses (SMBs) globally have been underserved by financial services providers. That's because these customers make less revenue than large corporates, yet demand more advanced services than most consumers. As a result, they've developed a reputation among legacy financial institutions for being unprofitable to serve.
  • However, fintechs are now finding ways to serve even the smallest businesses, while still realistically expecting to turn a profit — and that's changing the game in the SMB space. Fintechs are filling the gap in service provision to SMBs in three main areas: provision of credit, access to critical business services, and provision of bank accounts.
  • Incumbent providers are fighting back with products of their own. By partnering with fintechs or building in-house services, they are adopting technologies first used by fintechs to create innovative SMB-targeted offerings. JPMorgan, Barclays, NatWest, and BBVA are just a few major banks leveraging new technology to better serve SMBs.
  • Fintechs and incumbents will come to dominate different areas of SMB product provision. Although a few alt lenders, like Funding Circle in the UK and Kabbage in the US, will continue to see success, legacy lenders will maintain dominance when it comes to credit provision. However, in digital business services, fintechs, such as Xero and Intuit, will likely come out on top, while neobanks, including Tide, Penta, and Redwood, will become serious contenders for providing business bank accounts.

Introduction

Small- and medium-sized businesses (SMBs) have historically suffered from a dearth of financial products tailored to their needs. That's because these customers make less revenue than large corporates, yet demand more advanced services than most consumers. As a result, they've developed a reputation among legacy financial institutions for being unprofitable to serve. Moreover, they are the riskiest of these three demographics, which has likely contributed to incumbents' tendency to keep them on the back burner.

However, fintechs are now finding ways to serve even the smallest businesses, while still realistically expecting to turn a profit — and that's changing the game in the SMB space. This stems from their use of new technologies, like application programming interfaces (APIs) and cloud computing, along with the most advanced data analytics capabilities, which have enabled them to automate many processes, and therefore provide more cost-effective, tailored [...]