Overcoming the financing challenges of SMEs with Banking Circle

What are the current pain points that small and medium-sized businesses in the online space experience when getting access to funding?

We recently surveyed over 500 financial decision makers and directors in SMEs to answer just this question. In the current competitive and fast-paced market, additional finance is essential to help most startups and SMEs expand and succeed. Anything hindering their access to cash is a significant issue.

In our research, we found that almost all SMEs have accessed business finance within the past five years – but many have experienced difficulties in borrowing from their usual bank.

Speed appears to be a big barrier for SMEs, with only 3% of those seeking funds obtaining finance within a week. Just over half of microbusinesses were able to get their hands on the cash within two weeks, but in the rapidly evolving market, two weeks can be a long time. And it seems that the larger the SME, the longer it took to secure loans.

Incredibly, for some businesses, finance took between five and six months to arrange. When two weeks could see big changes occur between a business and its market, six months is far too long for a small business to be waiting to take its next step. A delay of this length could be catastrophic. Indeed, for some firms, it could mean cutting headcount.

As well as the speed of accessing finance, interest rates and fees were also big issues for our respondents. Over a third (35%) of SMEs found that their usual bank wasn’t able to offer the best interest rate on their borrowing, and more than one in four (28%) were put off a bank loan by heavy arrangement fees. Rigid repayment terms were an issue for nearly a quarter of them (24.2%), and a previous bad experience made more than 1 in 10 (13.9%) hesitant to even apply to a traditional bank for finance.

What are the limitations of traditional bank-based business lending?

Lending of any type is risky. Overdrafts, credit cards, short or long-term loans. They all carry the risk of non-repayment. And since the financial crisis began a decade ago, banks have been ever-more cautious, especially when it comes to funding for smaller and seemingly less stable businesses.

As a result, SMEs struggle to access finance to remain competitive and support growth plans, whether that be for new equipment or additional headcount. Especially challenging for banks is the ability to move quickly enough to meet the high demand of today’s SME. In particular, outdated legacy systems and processes are a major stumbling block for the traditional banks, which has led to them being slow to adjust and respond to changing market conditions.

This is a huge opportunity for FinTechs and small and medium-sized banks to jump forward. By working with carefully selected partners, they could add value to their customer service proposition – as well as generate an additional revenue stream.

How are fresh players in the market stepping up and joining forces to support and change the entire business lending landscape? What are the opportunities for smaller businesses?

Banks have previously tried to build and deliver new solutions internally. However, with competition growing and turnaround times needing to speed up, legacy systems are holding banks back, although change is in the air. The evolution of the financial utility is giving banks the opportunity to benefit from the investment made by specialists in back-office functionality, without having to commit significant time and resources in-house. By creating an ecosystem of connected services, financial utilities are delivering a genuine advantage for the banking sector.

And this evolution in the way that banks create solutions for smaller businesses – by moving faster and being more responsive to market need means there are hugely exciting opportunities for the SMEs that underpin global economies. SMEs need affordable lending solutions to support their growth – and FinTechs and banks can help them by providing flexible, cost-effective and efficient finance.

Can you explain to our readers how Banking Circle Lending works and how it is empowering SMEs by providing easy and smooth access to finance?

Banking Circle Lending enables banks and FinTechs to offer their merchants fast access to cash, without any credit exposure to the financial institution’s own business. Whether a company needs to purchase seasonal stock, refurbish premises, invest in marketing or increase headcount, a quick and simple loan could make the difference.

In building Banking Circle Lending, we have tackled each of the main pain points SMEs face when trying to access new funds, namely speed, flexibility, and cost.

The financial institution is provided with a Banking Circle Lending API, which can be integrated into their own website in order to create a seamless own-branded credit assessment process.

Repayment can also be far more flexible. Merchants can opt to repay a fixed amount or a flexible percentage to enable them to pay more when business is good and less when times are tougher.

Through Banking Circle Lending, banks and FinTechs can give merchants faster access to cash, with flexible repayment options and personalised online account management. This provides an extra revenue stream for financial institutions and adds real value to the customer relationship.

How long does the entire application process for the Banking Circle Lending solution take?

The length of time an application takes is one of the key motivators behind the launch of Banking Circle Lending. On average, a traditional bank loan takes 60 days, which is far too long in the life of a business, especially an SME.

A business applying for finance via Banking Circle Lending will receive an indicative offer within minutes, via the online calculator on the bank or FinTech’s own website. Within 24 hours, a binding offer is made, and the money will be received as soon as the next business day. Overall, the entire application process takes a maximum of 72 hours.

How does Banking Circle differentiate among finance providers in the market? What is the one core proposition that makes you client-focused?

By leading the rise of a super-correspondent banking network, Banking Circle is helping FinTechs and banks to provide their customers with faster and cheaper cross-border banking solutions, without the need to build their own infrastructure and correspondent banking partner network. As such, Banking Circle is empowering these financial institutions to support their customers’ international trading ambitions, without the need for multiple banking relationships, whilst reducing risk and the operational cost of transactions. That is enabling them to enhance their customer proposition and remain competitive.

Banking Circle’s suite of solutions is unique, and each product meets specific needs of businesses working locally and globally in today’s challenging and highly competitive market. Incumbent players are less willing to service SMEs – whether it is handling payments or lending – since the financial crisis, and this reluctance has forced SMEs into an unfair fight for the services they need to survive and compete, let alone prosper.

Through Banking Circle, banks and Financial Tech businesses can provide their customers with access to fast, cheap and convenient loans, as well as local and cross border payments and FX. While other providers offer some of these elements, Banking Circle is the only financial utility able to offer all of these in one place, at low cost and delivered efficiently. In addition, due to the service being delivered in the bank or FinTech’s own name, it is enhancing the overall customer experience.

Every solution we deliver is being built from the ground up, with the end-customer at the centre. We ensure all of our solutions are seamless, removing the pain points currently holding businesses back, and enabling them to empower global trade for even the smallest of businesses.

In your opinion, whats the most important change coming to the process of delivering financial services to small businesses – whether payments or financing – in the next 3-5 years? How are you planning to tackle those changes?

What’s changed is the customer’s expectation. From faster bank transfers and smartphone payments to fast access to short-term loans or instant credit through online payment providers, understanding the customer’s expectations is crucial in the consumer marketplace. Consumers today have access to convenient payments and loans at the tap of a smartphone. And businesses are quickly catching up with similar expectations for the services they use.

We have seen in the past that consumer trends have significant impact on business processes – slightly later, but moving quickly once the momentum builds and bringing effective and efficient solutions. No doubt, business payments and lending will follow suit, and Banking Circle is one of the first providers to help banks and FinTechs make this a reality.

The growth of digital, supported by changes in regulation, led to a huge influx of new financial tech businesses. These enterprises are now poised to put competitive pressure on traditional lenders, forcing them to invest in new solutions. The alternative is that banks risk falling further behind the frontrunners, losing valuable customers as a consequence.

Digital is rapidly evolving, levelling the playing field of the international marketplace. In today’s market, emerging economies are counterparts on over half of global trade flows. This levelling of the playing field also applies to cross border banking and payments service providers, with more players being able to enter the market, increase competition and improve solutions for businesses and consumers alike.

Financial utilities like Banking Circle can handle non-core banking functions, such as payments and financing, for financial institutions outside their domestic core, leaving their time and resources to focus on customer relationships. There’s increased acceptance of this ecosystem approach to cross border transactions and payments. And our research shows high demand for a simpler, more affordable solution to business lending too.

It is for this reason that we built Banking Circle Lending. We continually monitor the changing market, conducting in-depth research into current requirements and pain points, in order to build the most beneficial solutions for banks and FinTechs and their customers alike.

The full white paper, ‘The epic business loan battle: SMEs fighting for finance’, can be downloaded here.

About Anders la Cour

Anders la Cour is Chief Executive Officer at Saxo Payments Banking Circle. He used his experience in legal M&A, as well as in venture capital, coupled with a strong commercial acumen and entrepreneurial mindset, to co-found Saxo Payments in 2013, with backing from Saxo Bank. He is also a board member of YouLend and an adviser to other financial technology businesses. Anders was named Entrepreneur of the Year in the 2016 Emerging Payments Awards, in recognition of his leadership in bringing to market the innovative Banking Circle solution to tackle the cost and time challenges of cross-border payments. He was appointed to the Emerging Payments Association Advisory Board at the end of 2016.

About Saxo Payments Banking Circle

Innovative global scale Financial Utility, Saxo Payments Banking Circle is underpinning the service proposition of FinTechs, PSPs, FX businesses and banks. Members of the Banking Circle can offer banking services to their customers – enhancing their own proposition – and helping merchants to trade globally, at low cost and with efficiency.