SMEs Under Pressure — 3 key Industry Shifts
Don't Bank on Banks — As a Service Economy — Capital Crunch is Real
1. Big Legacy Banks are Not Able to Help SMEs Efficiently and Flexibly
Due to increased regulatory pressures, such as heightened capital requirements, large banks have less room to manoeuvre when building their offerings to SME companies. Fundamentally, larger banks with larger cost bases are structured to serve Fortune 500 companies.
2. The Dawn of the "As a Service" Economy
Emergence of service providers for a variety of B2B services, such as IT development, customer service, maintenance, cleaning, financial management,... Some folks have coined the development "As a Service Economy". Increasingly companies, both large and small, are outsourcing most parts of non-essential operations. This has lead to emergence of thousands of different service providers, who all have monthly bills and salaries to pay, but who get paid by their customers only after delivery of the service. In other words, these rapidly growing service providers have growing working capital needs. In Finland, for example, many IT service companies have enjoyed nearly 50% annual topline growth over the past five years, a good example being Siili Solutions, one of the presenters at the Lexia event on the legal challenges of FinTech in Europe.
3. The SME Capital Crunch is Real
Companies of all sizes face intense pressure to use capital effectively, including tight management of accounts payable. This leads to constant tightening of payment terms to suppliers, including payment times as long as 90 days. As a result, the suppliers (or service providers) are being squeezed.
The above industry changes were shared by all presenters at the Lexia event, both large and small. Presenters included Google, Siili Solutions, OP-Pohjola Bank, the Financial Authority of Finland and AREX.
The presenters saw a lot of opportunities emerging for new entrants in the FinTech (financial technology) industry. Several market opportunities were highlighted: innovation in insurance markets, mobile payment solutions, such as Google Wallet, and crowdsourcing platforms for new funding.