• Nima Montazeri, Chief Product Officer at Liberis


• 03.03.2023 09:30 am
#fintech

2023 has already seen the FinTech sector leading the charge in the adoption of the latest technologies, making waves in banking, lending, and payments. Throughout the year, we can expect to see FinTech’s digital acceleration have a greater dependence on SMEs, with newer enterprises rapidly gaining a bigger slice of the pie compared to their mainstream counterparts. 

The growing dominance of best-in-class SMEs

FinTechs are gradually winning the trust of consumers, and businesses are finding their services to be a lifeline, especially amid the recession. The best-in-class SMEs are dominating their respective sectors, with their growth greatly outpacing that of incumbents. 

Online booking and food delivery platforms such as Deliveroo and UberEats are all gaining market share, as they deal with consumer payments, processing, and payment cards internally. This hugely improves and streamlines the consumer experience. A simple interface, with the customer journey taking place in a single platform, inspires trust and loyalty amongst their customer base. 

Platforms such as Paypal, Starling, and Square are all outgrowing traditional banks in gaining new SME customers. These new banks are providing a range of services such as bank accounts, online payments, foreign exchange, and lending at a pace that high-street banks cannot currently match. Many are leveraging embedded finance capabilities to replicate Fintech offerings and more advanced technologies, such as virtual assistants and machine learning techniques (McKinsey).

Growing loyalty has and will continue to emerge thanks to the ease of these 'super apps'. In doing so, they have aggregated the demand of their customer base by offering a superior user experience, particularly through embedded finance that allows them to access a variety of financial services. Subsequently, their flywheel will regularly bring in new customers as they can offer hyper-personalised experiences based on actual SME performance, meaning they can offer the right product, to the right customer, at the right time.

How mainstream banks are keeping up 

Mainstream banks are being forced to up their game to compete with the more streamlined application journeys and easy-to-use mobile applications provided by new FinTechs. It will take serious dedication from mainstream banks to provide consumers, many of whom are now converted to alternative forms of finance, with more attractive options. Even in 2019, consumers were found to have a high expectation of their customer experience, having got used to the speed and fluid nature of Amazon and Uber, and this will have only increased since the pandemic. If platforms they shop on can provide this experience, they expect it from their banking provider also. 

Most large retail banks are still dealing with legacy infrastructure and old-school algorithms that are still serving their customers with outdated processes and products. This makes it the perfect time for Banking-as-a-Service (BaaS) and embedded finance players to mature from their initial niche, and into the mainstream market. Already well ahead of the curve in accelerating their digital offerings, banks are best building up effective partnerships with these new finance providers in order to keep up and better serve their customer base.

How FinTechs are changing how businesses operate and grow

Digital innovation in FinTech can provide much-needed working capital to small and medium-sized businesses, reducing the time that finances are tied up in inventory, marketing, payment processes and invoicing. It can also help working capital much more efficiently, and reduce the cash squeeze by common situations such as late payments, or long supply chain services. A study from JPMorgan in 2020 found that the average SME only has 17-25 days of cash flow before they run dry, and in the current financial climate, the flexible availability of funds and better education for SMEs in alternative banking will prove to be essential for the recovery and growth of the economy.

The future of FinTech

2023 is shaping up to be a strong year for FinTech, with the convenience of digital payments empowering small businesses, and connecting global finances at an unprecedented pace, with the UK’s Neobanking sector alone, expected to show a revenue growth of 27.3% in 2024. For individuals, the mass adoption follows a similar curve, and the digital acceleration of finance sees 97% of millennials using mobile banking, and 64% of worldwide consumers using one or more new FinTech platforms. 

With escalating demand for finance without friction, the FinTech sector is primed to move from strength to strength, and the digital acceleration of finance amid growing consumer interest in these streamlined processes sees revenues expected to increase from $43 billion in 2021 to $138 billion in 2026. This year is set to be FinTech’s best year yet, and mainstream finance providers who aren’t taking advantage of digital acceleration will see themselves lagging behind.