November 21, 2022

6 SME Financial Institution Trends to Know

6 crucial trends will help SMEs adapt and stay ahead of the curve

Since the pandemic disrupted our way of life, businesses are building themselves toward recovery. However, one thing still on their minds is how they will succeed in the new normal with increased pressures, disruptive trends, and more competition?

Customers today expect the same user experience from financial institutions they get from digital leaders such as Amazon, Google, and Netflix or SME or a startup. More than ever, B2B customers and their users want it anytime, anywhere, on their chosen devices at their fingertips.

In addition, they expect lower prices, wide range of products and services, the same reliability, simplicity, 24/7 service, convenience, and efficiency. Its getting harder than ever to tick all these boxes.

As a result, SME financial institutions, such as banks, cooperative unions, micro-finance, insurance, and post-offices, will need to up their game. To be successful, they must embrace emerging technology, be agile, flexible, and put customers at the centre of their strategy.

For us at Bankingly, we believe these six crucial trends will help SMEs adapt and stay ahead of the curve.

1. Digital Transformation

Digital transformation is not a new trend. However, it has dramatically increased during the pandemic, in the Banking, Finance, and Insurance (BFSI) sector. As a result, many Latin American financial institutions are shifting from manual paper-based processes to digital business models, leveraging online, mobile, and social platforms. They are looking at new ways to engage their customers who are more tech-savvy, connected, digital natives armed with smartphones.

The numbers speak for themselves. The fintech platforms globally reached 2,482 in 2021, a growth of 112% from 2018 to 2021 - nearly a quarter (22.6%) are from LatAm & Caribbean, according to IDB Invest and Finnovista. Digital banking is one such example.

It's also become a necessity for African banks². As per survey of 100 African banks, 94% said digital transformation is one of the three essential factors in their growth strategy. In addition, 42% said that providing better service is priority² when investing in new digital infrastructure, and 79% said their banks use some form of third-party help or partnerships for digitization.

Small and medium-sized (SME) financial institutions have a huge advantage over large ones: not having complex, ageing legacy systems. As a result, the transformation process will be relatively economical, faster, and manageable, which means it can leverage technology and compete better.

It's no longer a question of why, but when? Financial institutions now realize that becoming "fluent in digital" is essential to future proof.

2. Hyper-Automation

One critical method of making the shift is to automate all possible routine, manual, and repetitive processes to reduce time, enhance customer relationships, and optimize costs. Even the word automation seems to be dated as it has an industrial-era origin.

The fast-growing trend is hyper-automation - an automation expansion that adds a layer of advanced technology and Robotic Process Automation (RPA). The difference is that while RPA focuses on robotically taking over and automating simple processes, hyper-automation is a more significant transformation of how a business operates that takes RPA to another level.

Banks typically use multiple legacy systems to run their operations - this is where RPA can make a difference; the tools can ensure all the systems work together, reducing the dependency on humans and the percentage of errors.

Since finance involves heavy documentation, compliance, and regulation, hyper automation will speed up the processing time, authentication, approvals, and predict fraudulent applications. Bank servicing, marketing, sales & distribution, regulatory reporting, compliance, payment and lending, customer support, and back-office operations are areas where hyper automation will transform the business.

For instance, with eKYC (or digital Know Your Customer), taking a selfie (instead of scanning and sending a photo ID), recording a video (for facial and voice recognition), integrating an Intelligent Character Recognition feature, and using biometric data will speed up onboarding from days to seconds. In addition, Predictive models can monitor all transactions and flag fraudulent transactions around the clock.

Today, few Anti Money Laundering (AML) solutions leverage hyper-automation can prevent errors, compliance risk and loss of business. In short, hyper automation can take back almost every task done by humans and makes the process simple and virtual.

3. Artificial Intelligence (AI)

In 2020, a study among 1,200 data executives on AI best practices, investment plans, and performance metrics³, over three-fifths (62%) of banks and capital market institutions were an advancer or a leader, ahead of the all-industry average for these two categories combined (48%). Furthermore, looking at the leaders exclusively, they were ahead of the average across all industries (31% and 15% respectively).

A staggering 75% said AI is important, placing it ahead of the all-industry average for these two categories combined (64%). Moreover, they have a higher weight toward significant (51%), while organizations across industries cited AI as transformative (37%).

SME financial institutions now realize that vast and diverse data sets, current, historical, and real-time, must be processed together to draw meaningful insights. This can only be done by using a combination of AI, Machine Learning (ML) and Natural Language Processing (NLP) techniques that can process this sea of data to identify patterns and trends.

Many have adopted Big data and Advanced Analytics in the screening process to assess credit scores and repayment ability in real-time, most of which was done manually earlier, taking up days. As a result, banks can develop a credit view that can reduce reliance on collateral/assets and credit scores to decide lending limits and mitigate the risk, thus allowing customized lending.

90% of financial institutions realize the importance of analyzing the customer's life cycle⁴. Such data analysis is sure to improve the quality of service, ensuring a better SME customer experience.

For example, using AI chatbots lets banks serve customers in seconds, 24/7, reducing human workload. Moreover, AI helps track user behaviour and deliver highly personalized services, products, offers based on customer preferences, history and needs.

Moreover, these tools are data-based and can replace the current mandatory annual reviews, enhance credit assessments and monitoring. This can fulfil the immense need to lend to millions who do not have a credit history, are unbanked, underbanked and untapped by formal banking channels.

Hence, implementing AI has become a "must-have".

4. Omnichannel Universe (Omniverse)

The Metaverse may be years away, but the omniverse is growing more substantially here. For example, according to research by the Boston Consulting Group⁵, 24% of respondents testified to a permanent change in how they communicate with banks; by 2024, 61% expect their banking business to be all digital⁶ and jump between devices.

Thus, omnichannel banking is the answer - making the same services and experience available digital and offline. Customers can perform the same task using a website, mobile app, social media, SMS, rich messaging (such as WhatsApp), phone (IVR), call centre, kiosk, in-branch, partner channel and in the future VR, A/R and the metaverse. Moreover, it integrates with customer support, video tellers, chatbots, and mobile apps and allows real-time data synchronization to improve productivity for the back office.

With an omnichannel approach, customers can start the onboarding with one channel and finish it with another without having to repeat or re-enter the data if they switch.

For instance, the banking system analyses customer credit card purchases and discovers specific buying patterns in the store, on e-commerce websites and in apps. Then, it can automatically generate offers, discounts, and rebates. This way, customers get incentives when they shop for certain product categories or buy from specific stores.

A bank can also use the location data of its mobile app to forecast its customers' spending. For example, when a user visits a car dealership, the platform sends a notification to the bank and automatically emails relevant promotions. In this case, a car financing offer and even bundling insurance with no paperwork.


MACH, is a collective word for Microservices-based, API-first, Cloud-native SaaS, and Headless. It's a combination of the best technology approaches and platforms that we believe will become a more common architecture.

Microservices are individual pieces of business functionality that are independently developed, deployed, and managed. API-first means all functionalities are exposed through an API that makes it possible to tie together two or more applications or services - internal or external with third parties using open banking APIs.

Cloud-Native Software-as-a-Service leverages the full capabilities of the cloud beyond storage and hosting. This includes elastic scaling of highly available resources.

Headless means that the user experience (UX) on the front end is completely decoupled from the back-end logic. This allows for design freedom in creating a much better user interface and connecting it to other channels and devices such as IoT, existing applications, A/R, sensors, and so on.

While MACH is a relatively new term, its components are not and hence quickly gaining popularity as it helps banking and finance. Since in MACH, every component is scalable, pluggable, modular, it can be continuously improved.

In addition, MACH gives the freedom to choose the best tools. By doing this, companies can maintain a structure that makes it easy to add, remove, or replace those tools. They also avoid 'lock-ins' or tied with one vendor or proprietary/closed technology stack.

Due to this, the path to an MVP (Minimum Viable Product) is shortened. Developers can roll out prototype in days instead of months, and businesses can prove key concepts before investing in large-scale implementations, saving time and money and reducing risk.

With MACH software architecture, companies can add, test, and remove services, like Lego blocks. With agility, instant changes can be made to meet customers' needs.

6. Banking Beyond Banks

The future of banking will look very different from what it is today. Emerging technologies, changing consumer expectations, and new business models will redefine where, who, what or how banking is done.

We forecast much faster adoption and market penetration by Non-banking Financial Institutions (NBFI) or Non-bank Financial Companies (NBFC). These entities do not have a full banking license or a branch but offer some or most products offered by traditional banks. In addition, they will create newer, smaller sellable units by adding pricing options and help 'brands become banks'.

For example, new types of lenders such as "buy now, pay later"; remittance service providers; payment processing, investments (Robo advisors), securities and commodities (e.g., brokers/dealers, mutual funds, hedge funds), funding (P2P and crowd-sourced), insurance, credit card systems, currency exchanges, microloan organizations all fall in this category.

Many of the above existed for decades, with activities akin to banks, but the fundamental shift is that they are leveraging digital technology to the fullest. As a result, they can scale rapidly, are not limited to a city or physical limitations of a branch or office, faster onboarding in seconds, and less market friction.

Adding to this and competing is a subset of NBFCs whose business model is not finance-related but serve as intermediaries or enablers.

Enabling this massive shift is 'embedded finance'. It integrates financial services with non-financial providers. Through BaaS (Bank-as-a-Service), it allows companies to embed or bundle banking type products and services into their websites or apps, without redirecting users to third-parties. Thus, buyers do not enter credit card details for each transaction, offer installments, insurance, and issue virtual credit cards. Instead, to the businesses or the end customer, the process is seamless and done in milliseconds.

Examples of such embedded finance are Super apps (Tencent's WeChat in China and Grab in Southeast Asia; TataNeu, Paytm, PhonePe in India); Digital wallets (such as Apple/Google Pay, PayPal), smartphone vendors, and social media platforms such as Facebook.

Users can pay, remit, share, store funds in their wallets, and buy/sell products, services, and invoices from these one-stop digital shops. In addition, these apps will become more all-encompassing and self-contained, offering even more commerce and communication - from ordering food, book a taxi, buy groceries, transfer funds, apply for loan, combining B2B and B2C functions. At the same time, letting users watch videos, play games, chat with customers or friends.

Similarly, telecom/mobile operators will extend directly or via partnerships even more financial services. With a captive audience of millions, businesses and users may not need to look beyond.

LightYear Capital investment fund estimates that, by 2025, embedded finance services will be worth $230 billion in revenues, a 10x increase over 2020 ($22.5 billion)⁸.

Customers can soon "build their bank" by combining services from different players instead of sticking to a bank. They have no switching cost, and the result is incremental, transparent, and flexible.

This will make brand loyalty outdated – more so with the current Gen X and Y, who will increasingly define financial services this decade. And in many cases, they will use third-party providers without noticing them.

It's not just Baas; increasingly, we expect financial institutions will segment the established SaaS model into subsets that cater to payments (PaaS), infrastructure (IaaS), security, etc., and lease their expertise and capacity to anyone.

In short, this will bring choice, complexity, competition and even some confusion and its share of challenges and opportunities.

As a result, SME financial institutions must fundamentally rethink customer interactions; how the products/services will evolve, look carefully at the ecosystem and if/how their business models can adapt.

What can companies do to leverage these trends? First, invest through tough times, do a SWOT analysis, build future capabilities and work with a partnership mindset.

As they say, the best way to prepare for the future is to be ready now.

How can Bankingly help?

We understand digital transformation. Bankingly helps SME financial customers to adapt, grow bigger and reach further. We are proud of the huge advances made by hundreds of our customers in using our platform of products and services, and their millions in emerging markets such as Latin America and Africa. All this at minimal costs, based on usage with go to market in weeks.

With experience, we have recognized expertise to empower your organization.











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