There are plenty of contextual jobs-to-be-done to be solved for professionals working at SMEs, who need to manage a range of operational and financial tasks without being a professional COO or CFO. Frequently switching mental contexts and applications is a pain point for them. Consequently, being able to bundle and orchestrate services becomes highly important: The next-generation of business banking applications will be as intuitive and plug-and-play as their consumerised B2B software counterparts. Based on these insights, we developed four viable innovation scenarios for the next-generation of business banking:
- Vertical SaaS tools with integrated financial services
- Business banking as aggregator
- Business banking as orchestrator
- Business banking as product factory
The next section of this post covers the first innovation scenario. Contact us to get a free copy of our full whitepaper, including all four SME banking innovation scenarios.
Digital disruptors move into SME financial services
A key theme in the current fintech ecosystem is that the barrier to entry into offering financial services is continuously reduced: Any company can become a fintech company by integrating banking functionalities on top of its own core service offering (“embedded finance”). In this scenario, non-financial SME software providers either get their own licensing and tailored fintech vendor setup in place or partner up with a Banking-as-a-Service provider that offers fintech functionalities and licensing out-of-the-box.
Many of the aforementioned SaaS tools are already adding adjacent financial services as part of their offering:
- Accounting software provides, such as Xero, aggregate accounts via open banking, match invoices to transactions and initiate payments directly from their applications
- Amazon partners with banks to provide lending to SMEs that sell over its platform, leveraging its proprietary dataset
- Shopify provides merchants access to financial services to launch, manage, and grow their business, including a Shopify Balance Account, Shopify Balance Card, as well as Shopify Loans, which leverage Shopify’s proprietary client data to improve underwriting
- Apple is moving into the softPOS space with its recent acquisition of Mobeewave, which turns iPhones into mobile payment terminals
Nimble digital disruptors that already excel in their core software offering have significant competitive advantages, such as proprietary datasets, high user engagement, opportunities to contextually tailor services, leading UX design and built-in real-time, digital workflows. They can offer financial services at lower margins, as their customer acquisition cost might be lower or their underwriting much better compared to traditional banks; alternatively they can offer financial services as a loss leader to boost the core product. Digital disruptors will likely continue to add financial services as a native feature of both their technology and business model stack, as it allows to capture additional revenue streams and makes their services more sticky. By utilising financial services as an integrated value driver, they become a major threat to traditional banks or fintechs who run financial services as their primary business model.
Innovation scenario 1: Vertical SaaS tools with integrated financial services
The specific financial services that will be integrated into software will vary greatly, depending on the industry, specific client needs and current service landscape. However, a few innovation opportunities stand out, as shown in our hypothetical scenario below:
What happens if an accounting tool for SMEs becomes the primary financial interface?