How to improve financial inclusion for small and medium businesses

Small and medium businesses (SMEs) are the engine of growth in most economies yet are under-served by mainstream financial services. We look at how tackling the financial exclusion of SMEs has become a policy objective for governments and a huge opportunity for providers.

Covid created an explosion in entrepreneurship. Side hustles and hobbies became main incomes as lockdowns, technology and changing expectations upended economies.

More people searched for how to start a business than how to get a job in 2021. 60% of teens want to launch their own businesses instead of working regular jobs. Meanwhile, the number of self-employed people aged over 65 has more than doubled in the past five years.

It’s no surprise that the number of newly formed companies across a range of tier 1 countries is 15% higher than average compared to before the pandemic. As more and more people make their dream of being their own boss a reality, what challenges do they face? And what are the possible fixes?


Huge gaps = huge opportunities

SMEs struggle to access the finance they need to start and scale a business. They’re facing a huge funding gap, estimated to be $5 trillion in the US, $77 billion in the UK and $825 billion in Europe.

So much so, a Bank of England report found that more than 50% of UK SMEs considered only one provider when seeking a loan, with 25% put off by the hassle or time involved. This results in 60% of would-be borrowers resorting to personal funds instead. And 70% choosing to grow more slowly than borrow funds.

SMEs also face various challenges related to money management: how best to budget, save, invest and spend. They want to know how they’re doing financially. But also want to save time and money, get good deals and access to relevant services.

The good news for providers is that where there are huge gaps, there are huge opportunities. Specifically, around delivering better, cheaper and more tailored financial services to SMEs.


Fintech fixes

Whether it’s cloud computing, open source software or agile development methodologies, technology has changed how quickly and cheaply providers can launch financial products.

For those launching financial products, ‘As-a-Service’ infrastructure allows them to utilise sponsors’ licences, access to card/bank rails and partnerships to cut red tape and launch times.

Lastly, better data and data access is changing the number and nature of services available. This enables providers to offer banking and payment services at a lower cost base than ever before.

It also allows them to change the operating model to launch and iterate new products and services faster. Plus explore new income streams, for example value-added tax, compliance and export solutions, to drive differentiation, customer acquisition and retention.

The fintech fix is not so much offering SMEs better banking and payment services, although this is important. Rather, it’s about expanding into areas that traditional providers haven’t addressed. Think: new products, customer groups or distribution channels.


How Monavate can help

Monavate is an FCA-regulated e-money institution and certified with Visa, Mastercard and Discover to offer direct BIN sponsorship. We offer this as part of a fully end-to-end service for clients wanting to issue cards. In a nutshell, this means we have the licences, expertise, partnerships and tech to put your card product in market at pace, at whatever stage in your company’s growth.