A Digital Slap in the Face—How Fintech Will Jolt Europe Awake

Nikolai Hentsch

 SMEs are the engine of the European economy, but that engine has been stalling. How do we drive growth across Europe through SMEs? AREX attended the ‘SME new business logic’ conference held at the European Parliament in Brussels, a platform which explored views on this burning question.

The SME financing world in Europe is in turmoil. According to the attendants of the conference, the four key trends affecting SME finance in Europe are:

  • Need for a digital union

  • Rise of FinTech

  • Increasing gap between the banking sector and the economy

  • Emphasis on transparency and disclosure

Read further to dig deeper on what exactly the expert attendants had to say on the topic.

The need for a digital union

Europe is in danger to be taken over by the US. In order to unlock growth and make Europe globally competitive, a digital union is a prerequisite. Gunther Oettinger (European Commissioner for the Digital Economy) noted the need to “break down country regulation around digitalisation”. To allow SMEs to do this is of upmost importance and something regulators and policy makers in Europe are working on.

This view was echoed by Perttu Jalkanen (CCO and co-founder of AREX) who noted “we need to see a coordinated and unified response to the digitalisation of the economy.”

“There is a need to break down country regulation around digitalisation”

The rise of FinTech and the impact it will have on SMEs

The rise of innovative FinTech companies is expected to have tremendous impact on SMEs over the next few years as they revolutionise how SMEs access debt and equity. Interestingly, Oliver Gajda (founder of the European crowd funding network) noted that "there is nothing innovative about alternative finance from a financial services point of view. It's still about equity and debt funding. The real innovation has happened in the distribution channels of these financial services."

“The real innovation in alternative finance is in the distribution channels”

The disconnect between the banking sector and the economy

Perttu Jalkanen highlighted the increasing gap we are seeing between how the banks operate and how the economy is evolving:

We are seeing a paradigm shift in the global economy; fixed assets are coming down but working capital needs are increasing as we move more towards a knowledge / service driven economy. All the while, banks are requiring more and more assets as collateral for financing.
— Perttu Jalkanen

Tony Baron, Chairman of the FSB echoed this misalignment stating that, "a lot of the time, it is cheaper for SMEs to borrow money under their own name versus under the company name”. 

Accounting perspective – transparency and disclosure is key

Leaders from different accounting authorities attended the conference. While there was a general recognition that from an accounting perspective, SMEs need to be treated differently vs. larger listed peers, an emphasis on transparency and disclosure was held absolutely key to enabling SMEs to access cheaper financing. While the ‘perfect solution’ will likely never be found, regulators need to walk the fine line between proper SME disclosure on the one hand, and not imposing huge logistical / monetary burdens through stringent accounting demands on the other.


Nikolai Hentsch

Chief Capital Officer