MONEY 20/20 Clouded view: Lack of suitable financial services is preventing SMEs from succeeding
Research from Banking Circle is pinpointing the support needed to bring Europe’s struggling SMEs out of the shadows Small businesses need a more collaborative financial ecosystem. That’s the key finding of Magna Carta research commissioned by Banking Circle which identifies the current barriers to financial inclusion, and the opportunities available to the Paytech sector There are more than 24 million small and medium sized enterprises (SMEs) in Europe, making up more than 99 per cent of the region’s businesses and accounting for two thirds of employment. As such, SMEs represent a significant opportunity, and their collapse would cause significant damage to the economy. Identifying this as a major issue, groundbreaking financial utility, Banking Circle, recently commissioned Magna Carta Communications to carry out independent research into financial inclusion for SMEs, to uncover the views and experiences of businesses, fintechs and banks today. And to identify the opportunities that exist for those organisations supporting the sector –
banks, payment service providers (PSPs), fintechs and other financial services institutions.
One size doesn’t fit all The research confirmed that there is no one single reason why firms are excluded from financial services; therefore it’s hard to identify a one-size-fits-all solution to creating financial inclusion. Every company was once a startup, an SME, a financial unknown and high-risk investment opportunity. For some, growth has taken many decades of prudent business decisions and gradual expansion. Think, for example about Johnson & Johnson, started in the 1880s, selling the first ready-to-use surgical dressings, and expanded steadily into new markets, boosted over the years by company acquisitions and partnerships as well as post-World War II demand for better surgical solutions and pharmaceutical medicines1. However, in the faster-paced markets of the last few decades, the ability to grow has gained a much greater sense of
urgency. To support that rapid growth, investment is needed from the outset. For some enterprises, this might come from family and friends, and then from forward-thinking venture capitalists. But for others, if early cash injections cannot be secured, they could well become one of the high proportion of startups that fail within their first four years of trading. While slow and steady growth can work for some companies, as it did for Johnson & Johnson, in today’s instant, connected, global market, speed is critical to get ahead, deliver innovative solutions at the right time and remain competitive. The problem is that financial solutions do not always serve SMEs well and, postrecession, banks are less able to lend to smaller, seemingly higher risk, businesses. This often leaves them unable to build or deliver their solutions and meet their potential ahead of the competition. SMEs are becoming increasingly left out.
The current landscape SMEs contribute more than half of all business turnover in Europe and generate more than half of all value added in the non-financial business sector – worth €4,030billion in 2016. These businesses
ThePaytechMagazine | Issue 3
Fintech Finance presents: The Paytech Magazine Issue 03