Small and medium-sized enterprises (SMEs) are vital to the economy in every country, with the World Bank estimating that around 90% of businesses are SMEs and that they provide more than half the jobs in the world. They also make a sizable contribution to their local economy, ranging from up to 40% in emerging economies to around 55% in Europe.

However, when it comes to banking, this sector is poorly served by financial services.  SMEs face hurdles of complex paperwork, poor access to finance, not being paid on time, and little to no advice or support for future planning.

Like many consumers, SME owners are comparing financial service providers with other providers in the economy and the comparison is not favourable. People expect digital solutions from their phones and laptops, fast and efficient products and services and ease of doing business.

This is of course the reason that the fintech market is beginning to make inroads into the SME market by providing real time digital services with personal attention, thus allaying the hassle of complexity and the regulatory hurdles associated with banking.

According to Kristen Kjerulfa, Chief Operating Officer at PayPugs, “the freelance economy is growing rapidly and does not look as if it will slow down, rather, it is expected to increase as the post-Covid world sees more people becoming freelancers.”

People who transition from a salary to working independently discover that there is a world of difference in a bank’s approach to lending money to them before and after the change.

On one hand, governments are encouraging SMEs to start up and on the other they are applying increasingly stricter controls over financial transactions, regardless of the nature of the SMEs.

Small businesses therefore find opening an account, accessing credit, and providing the correct documents for anti-money laundering (AML) regulations daunting. Even the know your customer (KYC) requirements can be hard to provide in emerging economies that pay utility bills through mobile money, thus making proof of residence difficult.

Credit applications are time-consuming and difficult to process and credit cards are also seen as difficult to obtain and expensive to manage. Therefore, SMEs often seek loans from family and friends, which in turn limits their growth.

People newly entering the market as entrepreneurs also discover the perils of not being paid on time and managing cash flow.  It isn’t usually a lack of cash but instead uncontrolled cash flow that causes more than 80% of SMEs to fail in the first year.

Kjerulfa added that “SMEs are familiar with off-the-shelf accounting packages but find banks do not provide accounting information in meaningful ways, then they are faced with needing either a full time accounting officer or hours of an owner’s time”.

The back end of fintech is state-of-the-art software, to enable speedy verifications, transactions and payments. On the front end, there is still a need to offer personal accounting officers that can guide and manage an SME’s business and enable it to grow.

This requires disruptor thinking that does not create work silos of software, accounts, front office but rather sees clients as an integrated whole that needs services and people working in harmony.

Fintech companies, like PayPugs, that can streamline verification of businesses and individuals, automate accounting and expense processes, and use data and advanced analytical techniques can open up a new financial world for its customers.