Two leading providers of banking technology, Mambu and nCino, discuss those barriers in a new podcast, Removing the Roadblocks to SME funding.
Richard Morgans, General Manager, UK & Ireland, for Mambu, says: "Getting SME funding has been difficult historically. We've seen an acceleration of being able to get better funding, underpinned by assessment through more of a data-driven process. It's less of a barrier now than it was before in the past, but there's still a lot that needs to be done."
Mambu, which provides technology infrastructure to 230 financial service providers in 63 countries, produced a report, Small Business, Big Growth, to examine SME funding challenges.
Morgans says the emergence of neo-banks have given SMEs options: "This new wave of SME lenders have come to market and started lending to sectors that found it frustrating to go to bigger institutions in the past. The new entrants are serving an unmet need and doing things quicker and more efficiently.”
Morgans says drop-off rates of businesses going through a lending application have been a huge problem for banks: "You would get so far through an application process, then suddenly face another requirement or a manual document to upload but without the ability to be able to scan something efficiently or recognise it in a certain format.
"How do you get that seamless journey, that frictionless experience, so you don't have that drop-off, so you don't have the customer looking elsewhere?"
Morgans says culture is one problem: "Some customers we serve are heritage brands - and sometimes with that comes a bit of heritage culture. Those institutions must demonstrate they are making a commitment to transforming technology, and to move with agility and flexibility.
"We're in a very strong market now for technology transformation, and it is driven by the consumer."
Thomas Byrne, General Manager, Europe Middle East and Africa, Commercial and Mortgage, for nCino, says consumer pressure led to rapid changes in retail banking for consumers - and business banking was now catching up.
"The financial crash saw some larger high street banks rush to digitise and invest heavily in the customer experience and app-based lending and app-based banking," he explains.
"However, that investment wasn't shared equally. There was a huge amount of investment in the consumer space, while business banking still felt like a step back in time.
"Customers want something that feels automated, and intuitive, for business banking too. Those consumer expectations are spilling over into SMEs, and into complex businesses, because that's what people have got used to.
"A decade or so ago, a lot of fintechs rushed into that consumer space because it was the most understood, and there was the most publicly available data. That's true on the business side now, and I think we'll see a real boom of innovation in the business banking world."
Byrne says nCino, which specialises in cloud-based banking software and services 1500 financial institutions, observed the pace of this trend to better business banking during the pandemic.
"Covid-19 definitely was an accelerator," he says. "We moved to a world where it wasn't just consumer expectations, but it was business realities that were forcing digitization on lenders.”
Byrne says successful banks will be those who have genuinely changed their culture and are proactive in understanding customer needs - using the richness of data at their disposal, a combination of high-quality technologies and the wise deployment of their people.
"No lenders - new and old - want highly-paid people to be reading out data from a screen that can be provided to a customer digitally. They need to draw insights from technologies, play them back to customers and have a genuinely meaningful conversation. It's that human value to create insights to help financial institutions - and help SMEs."
Richard Morgans thinks big banks are ready to embrace change: “They are humble enough now to realise some of the errors of their ways. Before, some customers going through financial hardship had no option where to go to, but now we see flexibility and choice in the market
"If we can get that data-driven process embedded across the whole of the financial institution, we'd expect to see continued better outcomes for the consumer.”
And Thomas Byrne thinks the future is bright: “If you combine changing consumer expectations, technological change and availability and abundance of data, I think we're in a good space to see some great innovation."
Click here to listen to the podcast.