The untapped potential for Fintech companies to serve small and medium-sized enterprises

By analyzing the Nordic fintech sector and SME value propositions, we identified eight main themes. These themes showcase subcategories where fintech companies can simplify the daily lives of SMEs:

1.   Accounting and payroll

For micro and small companies that do not have a dedicated finance department or person, accounting and payroll become very demanding if not simplified and automated. Around 90 fintech companies in the Nordics work on simplifying payroll and creating new innovative payroll solutions. These solutions enable employees to receive pay on demand, rather than at the end of the month.

2.   Compliance and cyber security

New legislations can generate more administrative tasks, which might make it more difficult for SMEs that do not have big budgets or in-house experts to tackle them. A subset of fintech companies called RegTech – short for “regulatory technology” – works on improving the compliance and cyber security space every day. Their expertise can be leveraged by SMEs.

3.   Employee benefits

Many fintech companies focus on how SMEs can help their own employees’ finances, flexibility and work-life balance. This focus is crucial for SMEs to stay competitive in attracting talent, compared to larger enterprises. For example, it is often not possible for small businesses to get the same pension solutions as larger enterprises. Instead, they can incentivize people who work on hourly wages to work more shifts using payroll systems.

4.   Digital banking

Digital banking is a classic fintech category. It is an increasingly important theme for SMEs that may have difficulties opening a business bank account at a larger, well-established financial institution. Digital banks that focus on helping SMEs have been growing significantly, giving SMEs access to the financial support they might not receive at a regular bank.

5.   Financing, liquidity and investments

This category focuses on how companies stay liquid to survive, or how alternative financing can be raised through methods such as crowdfunding and crowdlending. Liquidity ensures that a small or medium sized company stays alive despite being in situations where customers are unable to pay on time, increasing the risk of the SME not being able to pay salaries, rent, etc.

6.   Payments

For Nordic countries that have almost-cashless societies, payments may seem like a simple area to tackle. But underneath all the smooth and simple user interfaces, vast complexity is interwoven through the whole infrastructure and value chain of payments systems. The payments category, therefore, includes any fintech company helping SMEs with payments.

7.   Data analytics provider

Data analytics matters for SMEs, both in their early stages as well as when they decide to scale. Being aware of changes in internal business metrics in real-time and over time will make it easier for your organization to adapt when needed. Hence this is another area where fintech companies can add greater value to SMEs.

8.   Business solutions and platforms

From marketplaces to management platforms, fintech can enable an array of business solutions that aid the everyday functioning of SMEs. Examples include platforms that help manage end-to-end B2B customer lifecycle, marketplaces that connect customers to various stores and platforms that support project and finance management.

Technology integration can be enhanced by increasing SME awareness of fintech and the range of services they offer. Five fintech interviews were conducted by EY in the Nordics to showcase how the integration of technology can drive SMEs toward growth.

The five fintechs selected for the case studies were Salary (Denmark), Bokio (Sweden), Strise (Norway), Calqulate (Finland), and Igloo (Iceland). The services offered by them include tools for online bookkeeping, payroll management, human resource administration, data and analytics, and business solutions.

The five case studies are featured in the report, each featuring observations relevant to both fintech and SMEs. General aspects of relevance to be considered by actors in the space have also been outlined in the case studies.

Future perspectives

As SMEs are still underserved in regard to financial services, the market has a high potential for growth in the future. One area of growth is banking services tailored for SMEs.

As seen in the mapping, digital banking may not be the subsector with the largest quantity of fintech, but since all SMEs need bank accounts and would like access to financial services, specializing in this market may be advantageous for those who manage to create the highest value banking services to SMEs. We also see other trends emerging. Climate change and ESG reporting is an area of focus for all companies, including SMEs.

The opportunities are seemingly endless. But one thing is clear. The power that fintech companies have to empower SMEs go beyond the realms of routine money lending. Administrative time saved with fluid automation through fintech enables SMEs to focus more on their clients directly, resulting in better and often cheaper services.

The right fintech-SME partnerships will foster fertile ground for entrepreneurial growth and a thriving business ecosystem. Helping SMEs focus more on their product quality and their customers will, in the end, serve all of us.