The importance of small and medium-sized enterprises (SMEs) cannot be understated. They create jobs and are a driving force of innovation and economic stability. In fact, SMEs contribute £4.5 trillion in annual turnover and employ 27 million people, accounting for 61% of the UK’s workforce. The UK government recognises this too, designating the “Year of the SME” in an attempt to create growth in the sector. However, despite their importance, SMEs are more likely to face survival challenges than enjoy sustainable growth.
For over a decade, SMEs have grappled with uncertainty, compounded by Brexit, the COVID-19 pandemic, a stagnant economy and insufficient government support. The financial technology (fintech) sector is in a prime position to step up and provide much-needed assistance, especially in payments. I recently became the CEO of the payments processor DECTA, and it would be remiss of me not to acknowledge the contributions of the SME community, as well as the challenges and opportunities they face.
What challenges do SMEs face?
The past decade has seen a significant decline in small business growth in the UK. According to the Enterprise Research Centre’s State of Small Business Britain report, SME growth has decreased by 40%. This isn’t just a statistic—it represents thousands of businesses fighting for survival, with many closing their doors permanently. The pandemic intensified these struggles, with nearly half of all SMEs experiencing reduced turnover and 30% forced to downsize.
In addition to reduced turnover, rising operational costs and shrinking access to finance are putting more pressure on SMEs. Bank account closures have added to these problems. A Treasury Committee inquiry revealed that more than 140,000 business accounts were closed by major banks in the past year, often with little warning. The combination of these factors is leaving many SMEs in precarious positions, unable to access the financial services they need to stay afloat.
Fintech’s Role in Supporting SMEs
Fintech companies are uniquely positioned to tackle many of the issues SMEs face, especially within the payments space. Unlike traditional financial institutions, fintechs are more agile and can develop innovative, tailored solutions for SMEs. However, fintech companies also face their own challenges—regulatory hurdles, cost pressures, and risk management, to name a few.
For fintech innovations to be effective, they must be both practical and accessible. It’s not enough to offer cutting edge technology; the solutions must directly address the needs of SMEs and be easy to implement. The key is to focus on innovations that bring real value and help solve the everyday problems that SMEs encounter.
Two of the most promising fintech innovations for SMEs are embedded finance and open banking. Embedded finance allows businesses to integrate financial services directly into their processes, simplifying payments, lending and insurance. Meanwhile, open banking provides SMEs with better access to their financial data, enabling smarter decision-making and improved financial health.
The payments side
The payments sector plays a pivotal role in the financial ecosystem for SMEs, but it faces considerable challenges. Regulatory compliance, cost management, and balancing risk without restricting service offerings are just a few of the obstacles payment providers encounter.
Despite these hurdles, fintech has consistently stepped up when traditional financial services have fallen short. The rise of digital banks, peer-to-peer lending platforms, and other fintech innovations have given SMEs new options for managing their finances. However, there is still more work to be done.
Payment providers must focus on creating solutions that are both innovative and accessible. Products need to be user-friendly, affordable, and genuinely valuable to SMEs. This also means maintaining a close relationship with SMEs to understand their evolving needs and challenges. By doing so, fintech companies can ensure their solutions are practical and impactful.
The future of SME support relies on collaboration between fintech companies, SMEs, and policymakers. Fintechs have the potential to lead significant change, but they can’t do it alone. Policymakers must create an environment that fosters innovation while meeting the needs of SMEs. This could mean reducing unnecessary regulatory burdens and helping SMEs adopt new technologies more easily.
Fintech companies, for their part, must continue to innovate with a focus on solving real-world problems. Success lies not in creating the flashiest technology, but in providing practical solutions that help SMEs thrive in a difficult economic climate.
The Path Forward
To equip SMEs with the tools they need to succeed, fintech innovation must strike a balance between cutting[1]edge solutions and accessibility. Collaboration between fintechs, SMEs, and policymakers is essential for creating an ecosystem where SMEs can thrive.
With the right support, SMEs can overcome the challenges they face and continue to play a pivotal role in the UK economy. The dramatically and constantly changing regulatory landscape in the UK means it’s never been more important for SMEs and fintech to work together for their mutual benefit.
To learn more, visit: https://www.decta.com
