Fintech
How Fintech Roadmaps Are Revolutionizing SMB Financing in 2024
The concept of a corporate roadmap has been with us for a long time. More recently, you may have also come across the term “roadmap” when talking about Fintech, Data or[{” attribute=”” tabindex=”0″ role=”link”>ESG. To help explain the trend in 2018 the European Banking Authority (EBA) published its Roadmap on Fintech. The priorities were clear. To monitor the regulatory perimeter and emerging trends. whilst promoting best practices, addressing consumer issues and identifying AML risks.
The report also stipulated how “fintechs also open up new channels for small and medium-sized enterprises (SMEs) financing and facilitate the access of such firms to cross-border and business-to-business payments, lending, working capital, cash flow management, invoicing and accounting, among other service.” The statement confirms that SMEs are a focus area for any fintech roadmap.
Fast forward to 2024 and the EBA is just one of many institutions who have laid out a fintech roadmap. It has become abundantly clear that asset managers, banks and regulators are seeing the use cases and benefits of digital assets and blockchain. UX and embedded finance have shown how quickly financial institutions can scale. As for stablecoins… they are just getting started.
Is Africa at the Centre of Fintech Innovation?
Today we wanted to share a few of the larger initiatives taking place around the world when it comes to fintech roadmaps. And, when it comes to digital transformation of financial services you must look at Africa in the first instance.
Africa has not had the benefit of a mature banking market. In many countries cash was still the dominant method of payment when VISA and Mastercard had already become the dominant force in the U.S. and Europe. This need to embrace fintech, in turn, has seen substantial investment in countries such as Rwanda, Nigeria, Kenya, Senegal and South Africa, to name a few. Ghana is another country that is working hard to create a fintech ecosystem.
“The Ministry of Finance is finalizing a small and medium-sized enterprises financing strategy which has components such as direct lending to SMEs, providing guarantees to financial institutions, reducing the cost of borrowing and supporting skills and innovation in the SME ecosystem through fintechs,” Ghanaian Minister of Finance Mohammed Amin Adam said in May.
Why SME Lending is an incremental part of any Fintech Roadmap
This link between fintech and SME lending is a common theme. In 2022 our editorial team spoke to Martin McCann, Founder and CEO of Trade Ledger. He told us that there was a 30% mismatch between supply and demand for working capital around the world.
Martin highlighted how he didn’t believe that 30% of business around the world are not creditworthy. He pointed to credit models as one of the areas to improve.
This problem has persisted. In 2023 the European Central Bank (ECB) published the results of a Survey on the Access to Finance of Enterprises (SAFE) in the euro area. One of the points of the survey was how euro area firms reported that the availability of external financing had deteriorated slightly. Bank loans availability was down by 5% and credit lines down by 2%.
Spain and Italy were markets that the survey specifically highlighted as having recent deterioration in financing conditions.
If SMEs are facing challenges in the euro area, what must be happening in emerging markets?
SME Lending, Roadmaps, and Emerging Markets
One of the most important organizations involved in nurturing fintech ecosystems is the International Finance Corporation (IFC). The organization is a member of the World Bank Group and is the largest global development institution focused exclusively on the private sector. The IFC connects economic development with humanitarian needs.
Ivan Mortimer-Schutts, Consultant at the IFC recently highlighted the role of national currencies and payment systems as essential public goods for consumers and businesses to participate in the economy. Ivan added how “to serve its purposes, governments need to foster a vibrant yet secure ecosystem that harnesses private sector incentives to meet the needs of diverse users of the payment system. This inevitably requires collaborative efforts and governance arrangements that carefully balance the different aims and objectives of policymakers as well as the interests of industry and society, proactively seeking to integrate new forms of money, payment services and institutions.” Basically, what governments need is a roadmap is what Ivan was trying to show.
The IFC has made great inroads into helping governments with this task. In the Western Balkans the IFC helped boost digital infrastructure in January. This has helped mobilize private capital. In Kazakhstan the IFC has invested in Shinhan Finance to support smaller businesses. The financing will mean that much-needed longer-term loans are made available to smaller enterprises. Additionally, 25% of beneficiaries of loans are earmarked to be women-owned small businesses.
In Ukraine the IFC, EU and Credit Agricole Ukarine announced in December 2023 a new €40 million equivalent risk-sharing facility to boost access to finance for Ukraine’s small and medium enterprises.
Women-led Businesses in Focus
Women-led businesses are a focus for the IFC. In a report from May this year it was highlighted how “accessing trade financing presents greater challenges for women because they operate informally, so they are excluded from public records which are used by financial institutions to assess customers before extending trade financing. They often lack sufficient collateral, as they generally own fewer assets; and on average they tend to be smaller and younger, which means that they have shorter credit histories.”
An area of improvement is credit reporting systems in Europe, a topic that has been on the agenda since at least 2018. The IFC can assist financial regulators in establishing and / or reforming their credit information systems (CIS). In fact, the IFC has already helped the central banks of Ethiopia and Madagascar by partnering with them to strengthen the public credit registry and improve credit reporting and increase access to finance for individuals and small businesses.
What about the Fintech ecosystem in Spain?
In the ECB’s survey it was highlighted how Spain and Italy were particularly struggling with SME financing. Both economies have faced their challenges of late, however Spain has a bigger role to play in the fintech ecosystem due to several factors.
Banco Santander, Spain’s leading bank, is the fourth largest bank in Europe by assets. Much bigger than Italy’s largest bank UniCredit which sits in 15th place. Another large Spanish bank, BBVA, is the 16th largest bank in Europe.
Allfunds, BBVA’s OpenBank, and Verse are some of the fintech startups that hail from Spain. Ebury was another one that has since been acquired by Santander. The eco-system looks healthy. Payflow and Kintai are two Spanish fintech platforms specifically focused on lending. These platforms use alternative credit decisioning mechanisms, often resulting in more competitive rates and quicker processes.
It seems that with the backdrop of a supportive regulatory environment Spain has the chance to achieve success. There appears to be some sort of roadmap in place addressing some of the needs of both SMEs and consumers. It might just need time.
Is the Future for SMEs Bright?
There is a dialogue in place between governments and the private sector in many countries. Whether it’s improving the fintech ecosystem, increasing access to funding, or improving credit reporting systems, things are moving forward.
Organizations like Innovate Finance in the UK, Elevandi in Singapore, or the European Digital Finance Association are all pushing for more collaboration between business and the public sector. Successes are still few and far between, however there do seem to be improvements year on year. Much will depend on the leaders of individual fintech associations, regulators, central banks and financial institutions. Whether these stakeholders can put aside their individual priorities and, instead, focus on the needs of SMEs is the question. Let’s hope this happens sooner rather than later.
Author: Andy Samu
See Also:
The systemic need for Working Capital amongst FinTechs | Disruption Banking
Central Eastern European Fintech Associations gather at Unchain Festival | Disruption Banking
Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.
The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.
Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.
The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.
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Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”
- PSD2 revolutionizes access to financial technology
- GDPR Improves Fintech Data Privacy
- Regulatory Sandboxes Drive Fintech Innovation
- GDPR Impacts Fintech Data Security
PSD2 revolutionizes access to financial technology
When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.
The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.
The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.
This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.
Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.
These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.
General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido
GDPR Improves Fintech Data Privacy
Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.
This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.
Financial Expert, Sterlinx Global
Regulatory Sandboxes Drive Fintech Innovation
Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.
This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.
Co-founder, UK Linkology
GDPR Impacts Fintech Data Security
A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.
GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.
For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.
I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.
CEO & Co-Founder, Leverage Planning
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Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.
Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.
A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.
What does M2P Fintech do?
M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.
Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.
According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.
By Gloria Methri
Today
- To come
- Aveni Assistance
- Aveni Detection
Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.
Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.
This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.
FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.
Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.
Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”
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