Why fintech finance is beating the banks

SMEs in particular are flocking to fintechs, says Alex Vavilov, Chief Innovation Officer for Stenn International
Alex Vavilov
A small business owner uses fintech services on her laptop

Fintech financing is one of the biggest financial disruptors of the last decade. However, the global need for digital financial services truly came to light during the pandemic when businesses relied heavily on remote banking solutions to cope with disruptions. 

Since then, fintech companies have begun taking a larger market share from traditional banks. The global fintech market has a staggering compound annual growth rate of 26.2 percent and is projected to reach $936.51bn USD by 2030. 

With such robust growth, it’s unsurprising more SMEs are turning to fintechs to access financing, particularly as the recession begins to bite and many need to secure additional funding to keep cash flow steady. 

The shift to fintech has been driven by several factors, including the increasing popularity of digital financial services, the declining trust in traditional banks, and changing business needs and expectations. 

By improving services, filling financing gaps and connecting SMEs to global financial systems, fintechs provide SMEs with a more modern approach to financing… 

A more efficient service

Innovative fintech companies are shaking up the finance world with their speed, convenience, and flexibility and competitive interest rates.

Designed for the digital age, fintech financing offers quick and easy online applications, so no more wasting hours filling out forms or waiting in line. Fintechs use digital platforms and algorithms to assess loan applications, allowing for faster loan approvals. Financial officers can access financing from the comfort of their own office or even on the go with just a few taps on a smartphone.

Best of all, SMEs can get approved in just a matter of hours, allowing businesses to access funds faster when they need them most. 

Filling financing gaps 

Research work with Accenture has shown that SMEs currently face a global financing gap sitting at $3.6 trillion. This is expected to rise to $6.1 trillion within the next three years, highlighting the difficulties faced by global SMEs in accessing financing. Particularly in developing markets with weak governance, banks are likely to reject small businesses in favour of established firms. 

However, this is not an exclusive issue to developing nations. A recent study found that 82 percent of brokers agreed high street banks are becoming more cautious, while 60 percent of SMEs are not confident they can secure a bank loan.

No collateral, poor credit scores and complicated admin processes are common barriers for SMEs looking to secure a loan through traditional financing methods. This is particularly a problem for new businesses that don’t have a long operating history to prove to banks they are not too high a risk to receiving financing. It’s often these businesses that need financing the most to help them get off the ground. 

By comparison, fintech financing companies often have lower barriers to entry than traditional banks, making it easier for SMEs to access funding. 

As mentioned earlier, fintechs operate almost exclusively online, so there is no need for complicated and time-consuming paper-based applications. Not only does this help save time in the lending process, but it also making financing more accessible to smaller companies and those in developing countries that don’t have access to traditional banking. 

Connecting companies to global financial systems 

Today’s trade finance client wants a more secure service that is less expensive and quick to access. And the non-banks are providing it. 

When it comes to financing across borders, there are plenty of regulatory hoops banks need to jump through to meet differing international requirements across countries and regions. This inevitably makes things more complicated and expensive for traditional banks and, because of this, many will refuse to service SMEs outside of their jurisdiction. 

Fintech financiers aren’t bound in the same way and can reach a broader market of SMEs seeking financing solutions. Using blockchain technology, intelligent compliance solutions and cloud-based storage of accounts receivable data, fintechs make it easier for SMEs to access proprietary information digitally and securely.  

Additionally, fintechs can process payments and transactions in a cheaper, faster way, enabling more cross-border trade deals. 

Written by
Alex Vavilov
Written by
March 1, 2023