There’s a growing chasm between traditional banks and their SME clients requiring more agile, tailored and flexible services. This has led to growing numbers of challenger banks, payment providers and treasury systems stepping in to make sure small businesses are not left behind.

 The necessity of accessible corporate banking has been long overdue, and a gap is emerging for challenger banks to fill.

Between a rock and a hard place: FX for SMEs  

SMEs are the engines of the global economy accounting for 95% of the world’s businesses. Yet, this segment of the market has been historically overlooked and underserviced by the banks. There’s a number of reasons for this, ranging from regulatory to legacy issues, but it ultimately boils down to SMEs often being seen as too small to be worth the time and resources of a big bank.

 As a result, FX has become a feature of SME banking that has been mismanaged for years. Banks rarely offer FX risk advice, even though most small business owners have limited knowledge of the foreign exchange risks they face. And in turn, small businesses have to scramble around and find ways of paying suppliers abroad as well as receiving payments from international clients, often at a high cost. 

This is hard to justify in an increasingly globalised world where very few companies operate using a single currency. 

These issues are also exacerbated by the “one size fits all approach” that many banks use to carry out international payments. Without a solution tailored to their exact, usually evolving needs, small businesses are left with no choice but to resort to using services that were never designed for them. This means coughing up high transaction fees and accepting payments systems that provide several days of uncertainty. 

SMEs need a global bank account, coupled with a treasury management system that is fit for purpose, and fintech innovators are lining up to fill this gap left behind by incumbent banks. 

A new challenger appears

Fintech innovation has transformed financial services at a rapid pace, enhancing customer experiences and making services faster, cheaper and more streamlined. These innovations have also reached the SME banking space, and incumbents would do well to take note if they wish to retain their small business clients.

Legacy post-execution management and the handling of payments from booking to settlement involves multiple suppliers and vendors; this creates complex paper trails with slow and inefficient communication flows. Solutions for these common problems have, up until now, largely been unavailable and inaccessible for SMEs.

When it comes to FX risk management, the majority of hedging programs were limited to providing an analytical outlook, ranging from three to six months, due to their lack of visibility and connectivity. This restricted how easily SME can manage and oversee their FX risk strategies. 

Similarly, the ability to buy and sell currencies, effective hedging and risk management, real-time cash flow management, international multi-currency bank accounts and fast payments all in one place – underpinned by cutting-edge fintech and with appropriate regulatory oversight – is finally no longer restricted to a handful for large corporations. 

SMEs are finally getting bang for their buck

Banks have the resources and expertise to provide SMEs with international payments solutions. But, by neglecting this portion of the client base for so long, they have created the perfect conditions for a wave of challengers to emerge. SMEs are now finally getting the attention they deserve.

FX is just one of the many areas where challenger systems are stepping in to offer smarter, cheaper and more efficient services to their customers. They are setting the standard for customer experience in all areas of banking, and it’s time for small businesses that reap the benefits. 

Services and functions that were once monopolised by banks are opening up, and challengers are making significant in-roads by offering more for less. Today’s businesses want more just good service – they want a smart one, where banking services seamlessly connect to other financing functions like cashflow management or invoicing. 

It’s the challengers that are bringing SMEs out of the dark ages and into the new world.