Why it’s good to be an SME

If you are an SME, the chances are you have been seriously neglected by your bank. Your accounting software or Excel spreadsheets are probably your only go to points to understand the state of your business. Your invoice management is likely to be scatty at best, and cash flow optimization is probably not something available in a few clicks. Oh, and it probably took you a couple weeks to actually apply and get your bank account.

So why is it actually good to be an SME right now?

Well, chances are in about 6-12 months you are going to have access to shiny new “banks” that are going to make your life a lot easier. These banks will be built around customers’ needs, rather than products or tech; they will neatly integrate accounting packages, offer other products and services via a marketplace; intelligently offering products and services to help with cash flow management and lending; and will feature a beautiful UI. They may be full scale banks, offering a host of services, or they may be “unbundlers” - which focus on a particular need or niche- such as international payments, or even a bank as a service, providing you with a “starter kit” to build an online store and make payments or simply provide you with an account number and let you tack on what you see fit.

These new kids on the block are rolling out propositions that solve the pain points of SME’s – in a nutshell, these will allow SMEs to spend more time growing their business than playing around with outdated and inefficient banking. How these propositions are defined, how they are adapted, and how they are positioned and brought forth to potential customers are, in our opinion, bang on.

Adaptation to truly solve customer problems

We caught up with Hufsy, the Copenhagen and Berlin based SME banking solution focused on offering a solution for SMEs. Hufsy started out with the view to offer a cross-border payment solution. However, after conducting customer interviews, Hufsy quickly learned that money transfers aren’t the big problem – a lack of a central hub to manage accounting and banking, was. Hufsy also started out in Denmark but has transitioned to offering its product in Germany (Fidor and Solaris serve as inspiration according to Rafal Lipinski, Hufsy’s CEO). Hufsy is clearly able and willing to adapt to changing customer needs and ensure its proposition truly fits the needs of its customer base.

From the get-go Hufsy has plans to dramatically change the way businesses bank. For example, in Germany the on-boarding process for a GmbH (company with limited liability) has historically been tedious, and Hufsy is looking to make this an entirely digital process, with a 10 min on-boarding journey. The actual proposition will feature integration with accounting packages, an extremely clean design, and a marketplace for products and services, such as factoring. It will use APIs and partners to expand its products and services, and eventually roll out Marketplace for financial tools.

Awareness is key

The fact that SMEs have long been subjected to poor propositions makes developing a great proposition relatively easier in comparison with other segments. However, this comes with the fact that SMEs generally are not aware that they could avail of a good proposition, that all of your business needs and requirements can be found in one hub, and that you do not need to have a finance degree to manage and optimize your business. In an effort to spread the word, Hufsy is working on establishing a community and engaging in events.

Hufsy isn’t alone in their mission to help SMEs

Another brand looking to capitalize on the SME revolution is Berlin based Penta. Similar to Hufsy, Penta is solving the traditional pain points faced by SMEs including on-boarding, accounting integration and also roles and permissions for businesses outside of the freelancer segment.

Similarly, Coconut, a UK based challenger bank, is focusing solely on the freelancer and self-employed segment. Its key USP focuses on solving two headaches for freelancers in the UK; tax planning and expenses. In particular, it will use a running tax bill, a real-time preview of a freelancer’s tax assessment to avoid any end of tax year shocks. It will be partnering with a BaaS provider after wrapping up a closed Beta. While traditional UK banks shoehorn and cater to legal status, Coconut’s ambition is to provide a truly tailored experience based on customer needs.

Alternative banking models are hitting this segment

Hufsy, Penta and Coconut are just a few of the latest entities to give traditional banks a run for their money. Following the wave of BaaS, BaaP and BaaM providers in the retail banking space, brands are starting to buck the trends in the SME world. For example, PayPal recently launched its Business in a Box service, within the US. It is targeted at business owners looking to set up an online presence. Via a partnership with WooCommerce and Xero, customers have the ability to build an online store with the former and take care of accounting with the latter. Other players in this space include Bud, which is building a white-label marketplace available to banks and IBAN first, that will offer a “pick and mix” platform for SMEs.

Bring on the disruption

All of the fantastic propositions above only scratch the surface of the digital revolution the SME space is beginning to experience. The space is ripe for disruption, which should worry traditional banks, but more importantly, there is ample opportunity for much needed holistic and relevant services for SMEs, allowing them to spend less figuring out their banking and get shit done.

If you are interested in further understanding your domestic or the global SME landscape, have a look at our digital benchmarking portal, 11:FS Pulse.

Meaghan Johnson is a co-founder and Director of Research at 11:FS.

For more information, follow her on Twitter, contact her to request a demo of 11:FS Pulse or book her to speak at your event.