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The Interrelation Between Banks, Fintech, and SMEs

Banks and fintechs have been rivals trying to cater to consumers in the same industry for a long time. When it comes to dealing with the new challenges in the industry though it becomes evident that each can hold their own. This is why now is the time for partnerships between these two strong contenders.

Evolution of Partnerships

The idea of a collaboration between a bank and a fintech is not new. When these two parties work together, they use Application Programming Interfaces in traditional banks that provide the means to use official financial services or products in regular applications of firms. This is known as Banking as a Service. These partnerships started as early as the 1800s, when signatures were first digitally autheticated. The technology became more sophisticated as time passed, paving the path for ATMs and mobile banking apps to give people the customer service they receive today. The banking sector is historically known for its unchanging processes since this provides a sense of security to the customers. However, now regulatory shifts like open banking and PSD2 have made it increasingly difficult for banks to fight for their position in the market. Banks need to initiate the changes as most companies will move towards non-banking institutions if they are more cost effective and have more open regulations.

How Do SMEs Factor In?

Small and medium sized enterprises (SMEs) are often overlooked because of their relatively low returns on equity compared to the big contenders. However, they are the largest pool of underutilised potential. SMEs make up around $850 billion of annual revenue for banks worldwide. This value is predicted to grow steadily over the upcoming years. This is where the new and innovative technology provided by fintechs in collaboration with traditional banks can help SMEs reach their true potential. They offer not only banking services but also combine them with business related services such as invoicing, payroll, tax preparation, inventory management, etc., to provide a whole ecosystem of services.

The necessity for these collaborations is also becoming apparent as consumers receive very tailored services in all other sectors and desire the same when it comes to their finances. Personalised and cross-sectoral services like those provided by big companies like Apple, Amazon, Google, and Alibaba are the ones that get precedence, so SMEs need to upgrade their processes as well to stay competitive. Improved technology, access to big data that was previously not available‒like those from online shopping‒and analytic tools can help in risk mitigation through enhanced insights. Besides these, security threats are better managed through deep learning models, enhanced character recognition, and location verification tools.

How Can Fintechs and Banks Benefit SMEs?

There are many services that have either been vastly improved or did not even exist before the joint effort by banks and fintechs. Some of the most notable ways SMEs can benefit are:

  1. Call centres: customer service can now be made better than ever before by using digital assistants that ensure better time management by guiding customers to what they need. Businesses can also use artificial intelligence and machine learning tools to create a fully functional 24/7 customer service agent that can handle all the basic tasks.
  1. Accessible Branch to branch payments: people usually have to get specific stamps, go to the post office, and essentially make many stops to make payments to various vendors. This procedure is a hassle that can be avoided if technology is put to good use and the payment process is automated and digitised.
  1. Unite all banking in one place: connected banking can be utilised to gather all banking information about a company in one consolidated source. Enterprises can directly view their account balance, transaction history, etc., without logging into their bank’s internet portal.


  1. Track payments in real time: businesses usually have a challenging time keeping track of their transactions. This is solved by automating the process, which allows companies to track the paths of all their transactions.
  1. Embedded Banking: businesses can offer their very own credit services like the HDFC Bank is doing in collaboration with Paytm. The Reserve Bank of India has allowed private sector lenders to issue new credit cards as of 2021, and this joint venture is likely to be a very popular business model in the near future. They are looking to provide many embedded banking services, including but not limited to a buy now pay later (BNPL) solution, easy EMI, Flexi pay, and many more.

The unification of banks and fintechs is likely to be a driver of modernisation in 2022 and the future. SMEs need to take this opportunity to carve out their own space in the market by using their combined technology since they are the ones that will gain the most out of this.

Written by Lamisa Mustafina

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