Creating next-generation banking services for VSBEs and SMEs 💳

There is a never-ending stream of new players entering the traditional financial services sector, leading to increasing saturation, leading to increased competition. This is happening to such an extent that new players must specialize and differentiate themselves—at all costs—even to hope to capture enough market share to remain viable, let alone flourish. 

Fintech companies pursue various niches. One such niche is professional financial services for VSBEs and SMEs. This niche—more than others—undoubtedly embodies the need to specialize and exemplifies the challenges facing today’s traditional financial services sector.

Let's take a moment to learn how financial services dedicated to VSBEs and SMEs are envisioned, designed, and developed.

New expectations of VSBEs and SMEs 🙋‍♂️

Payroll management, accounting, and customer invoicing, to name a few. The day-to-day routine of a VSBE or SME manager inevitably revolves around managing many varying tasks in a timely fashion, if possible.

In addition to the basic traditional services, such as account consultation, deposits, and transfers, today's next-generation version of financial services software for small businesses must offer a comprehensive digital ecosystem to enable a manager and key employees to perform a whole range of tasks within the same program.

Administrative management, credit contracting, e-commerce integration, real-time performance monitoring reports, automated accounting solutions, and collaborative workflows, again, to name just a few. More and more functionalities are now directly integrated into banking solutions offered to VSBEs and SMEs.

Like everyone else, small business managers and owners are now expecting and demanding an excellent user experience (UX). Thus, if they were once able to differentiate themselves by offering access to online banking services or even access via smartphone (mobile banking), those services have simply become common-place and therefore essential.

But despite appearances, UX is not the primary reason that VSEs and SMEs have a keen interest in next-gen financial services. Indeed, although UX is cited as the reason by 24% of executives, 39% of them emphasize the productivity gains achieved.

Either way, whether it's a matter of improving the UX or helping to streamline costs, neobanks and their tech challengers now understand the value of meeting VSBEs’ and SMEs’ specific expectations: they must develop tailored digital ecosystems to enable VSBEs and SMEs to thrive in the digital age.

The specific responses of neobanks and tech players 📱

Unlike traditional financial players, highly innovative financial players are characterized by the abundance of digital technology surrounding them. But above all, they are characterized by the adoption of new and specific business models classified into four main categories by a firm called Ross Republic: 

Embedded Finance

Any business can become a fintech company by integrating banking functionality into its core services offering. In this scenario, SME software providers partner with fintech companies or BaaS that offer financial functionality as an add-on to their license. Many SaaS tools add financial services to their offer: accounting software like Xero (account aggregation and payment initiation) or e-commerce players like Amazon that provides loans to SMEs that sell on their platform. These integrators will continue to add financial services via embedded finance and continue to capture additional revenue streams and make their services more sustainable. These companies can increase their revenue per user by a multiple of 2 to 5. Beyond improving value, these banking functionalities can unlock revenue streams for software providers. 

Aggregators

These companies aggregate third-party data and functionality from multiple sources aiming to provide the convenience of a "one-stop-shop" that fully meets customer needs. They hope to become the customer's primary interface. Many neobanks—for example, Tide, Penta, and Shine—that focus on the small business market have begun to bundle banking functionalities—such as loans and insurance—and their own offerings to create a digital marketplace. Relying on a wide range of partners (fintech companies, BaaS, and insurtech), aggregators leverage third-party banking infrastructures to free up resources and focus on building their aggregation strategy. This allows them to provide efficient workflows and create AI systems that provide accurate analysis of SME activity. 

Orchestrators

In order to control the customer relationship and to become the sole contact for very small businesses, orchestrators develop a proprietary solution with integrated, personalized financial services and products with the aim of becoming a "one-stop-shop." The distinction between an orchestrator and an aggregator is that the former uses their own technology stack, building a large part themselves or relying on components from a Core Banking Platform. In addition, orchestrators hold a license for payment, electronic money, or credit. Several players have adopted an orchestration strategy: Holvi, Qonto, and Coconut. The advantage of orchestrators is their ability to control the product via a front-to-back approach. As a result, they can bring greater quality to the products and experiences they offer their customers. 

Manufacturers

Removed from the customer and focused on producing and maintaining products or services used by aggregators, manufacturers design software components to be integrated into their partners’ environments. Xero, Amazon, or Shopify are examples of integrators. These brands serving SMEs (software providers) seek to expand more and more into the financial services market. They connect to the APIs of manufacturers of banking functionalities such as KYC, IBAN issuance, credit or debit cards, currency conversion, etc. They play the role of "Product Factory", providing all the business expertise and modular architecture in the cloud, delivering independent microservices that allow companies to launch financial products more quickly. For example, Booking.com relies on Stripe's APIs for its marketplace to make it easy to accept payments and make transfers around the world.  

Whether they are "pure-players" in the fintech world or basic tech players wishing to gain a foothold in the world of finance, the new players in the market of professional financial services for VSBEs and SMEs are innovating as much on the strategic level as on the technical and financial level.

But in addition to choosing the right business model, in order to offer tailor-made, high-performance, secure services, many players in the market are now striving to offer VSBEs and SMEs new, tighter collaboration models, in particular via the implementation of new in-house tools (embedded finance), or the creation of APIs.

In a highly volatile and competitive environment, to meet the specific requirements of VSBEs and SMEs and to facilitate distribution, next-generation banking services are now based on microservices.