Small and Medium Enterprise Finance Trends Fintech Leaders Should Watch: 2022 Edition

The last two years have been tumultuous for nearly everyone. From mandated closures, lockdowns, anxieties around health and work, and well… the general state of the world, things have not been easy. This is especially true for small and medium businesses, who have not only had to deal with all of this, but also worries about whether their businesses will survive to see the end of the pandemic. 

While the pandemic hasn’t yet ended, the strides made in vaccinating against and treating the virus mean that business has been able to reopen in a way that’s reminiscent of pre-covid times. As such, many SMEs are hope that things will turn around now that we’re well and truly into 2022.

On the other hand, a number of SMEs aren’t starting the year with hope, nor a clean slate. Some amassed debts during the pandemic to stay afloat, instability with cash flow means that invoices are taking some time to get paid, others haven’t found the time  to do their bookkeeping, and, some just need extra capital to give their business a boost and take them to the next level. With fintech making leaps and bounds every day, we’re likely to see new finance trends emerge in this year.

Interconnected and Embedded Finance

Although developments in finance have resulted in some incredible tech infrastructure that boosts productivity, efficiency and in some cases, profitability, the fragmented nature of so many separate products means that managing multiple platforms can be a job in itself. Furthermore, when applying for financing or various financial products and services, the task of trawling through each of these platforms is not only time consuming, but somewhat rage inducing. To make matters worse, sharing this highly sensitive information, usually over email, is a massive security risk, particularly for small businesses vulnerable to ransomware and fraud attacks. 

That’s why in 2022, we’re likely to see the importance of integrated financial technology coming to the forefront, both in terms of business management systems as well as financial products. To illustrate the former, a clear example can be found with business management platform, Thryv, who have paired their business management system with the ability to create and send invoices, which are then synced automatically with their bookkeeping system. For the latter, a great example can be found with platforms like Shopify or Xero, who are embedding financial partners -- such as those who can offer cash advances or invoice financing -- within their platforms at the point of need. 

The platforms best poised to find success in the new year via embedded finance are those that act as a single source of truth upon which business data can be pulled, like accounting platforms. As we move through the year, it’s likely we’ll see a growing number of providers taking advantage of universal APIs, like Codat, to do so quickly and easily.

For businesses, particularly in Australia, the launch of Open Banking is the first step in the smarter utilisation of financial data. With the right investment and regulation, Open Banking is set to give way to Open Finance and Open Data, which will completely transform how small businesses access and experience financial services. For the fintech leaders who will soon be able to use this data, benefits including enhanced security, increased efficiency and productivity, lower overheads, and a completely transformed customer experience, are just the beginning.

BNPL for Business

Supply chain woes were a central topic in 2021, with backlogs across the globe resulting in reduced product availability and a whole heap of irate customers. In fact, supply chain financing has been around for a while, but we are now seeing it termed ‘buy now, pay later, (BNPL) for businesses, piggybacking off the incredible rise in popularity of BNPL services like Afterpay for consumers.

BNPL for Business, isn’t so much about funding the practical day to day operations, but making suppliers and other vendors more attractive to businesses by reducing upfront investment and allowing them to pay in installments. For SMEs, the splitting of business-related payments will ensure they can continue operating when cash flow is tight due to extraneous factors, such as the pandemic. Of equal importance, it also ensures suppliers are paid on time, usually SMEs themselves.

As such, this year, we’re likely to see an upswing in adoption of platforms that enable access to  or BNPL for SMEs. A number of these platforms already exist, some featuring recurring revenue financing options, or invoice auctioning marketplaces where businesses of any size can get financing for unpaid invoices from independent lenders, with the intent to pay the loan as soon as the supplier settles the original invoice. This means limited cash flow disruption for the SME, and because those lending are individuals, ethically-minded corporates or private investors, interest rates are in line with, if not less, than traditional lending institutions. 

ESG and Carbon Accounting

Demand for action on environmental, social, and governance, or ESG, issues is rising, and increased interest from investors and regulators means that the practice area of ESG and carbon accounting is now not just a matter for large corporates, but SMEs too. Outside events, like The UN Climate Change Conference in Glasgow, or COP26, have added urgency to the debate -- urging businesses to ensure they are aware of, and addressing, any ESG or climate impacts of their practices. 

This shift towards greater accountability has created a niche to fill for new and innovative providers. In the last few months alone, we’ve seen a number of new players enter the market including Dodo, a platform that measures, analyses, and reduces emissions, Cozero, a platform that tracks and engages carbon performance, and Planetly, a platform that helps to introduce and implement carbon management strategy into businesses of any size. 

As we move through the year, we expect to see the number and quality of these offerings proliferate further, and expect that the growth of these technologies will create efficiencies for businesses and their bottom lines.