Alternative lending to micro, small and medium-sized enterprises (MSMEs) is a long-standing driver of global financial technology (FinTech) development in the B2B segment. According to a Morgan study
Stanley, the global online lending market for MSMEs could reach $ 47 billion already in 2020 Roman Lavrentyev, PImPay’s head of financial services, talks about the market situation
online lending to MSMEs and the competition that arises between traditional financial institutions and Fintech companies.
Lending was one of the first segments of finance to experience the effects of the scientific and technological revolution. The combination of finance and technology has revolutionized borrowing
industry. Today, companies in need of access to capital can obtain alternative financing through online platforms using technologies that allow for fast and efficient
meet the financial needs of individuals and legal entities, and lender to receive additional income. Fintech companies seek to capture all the business segments left
traditional credit institutions after the 2008 crisis. composite Forbes
rating Fintech startups with the best prospects for 2019 fully reflect these trends: two places in the TOP-3 in terms of investment are now occupied by platforms
Affirm and Kabbage online lending with $ 450 million and $ 489 million, respectively.
The online lending market has grown rapidly over the last 5 years. In just three years (from 2013 to 2016), the market has grown from $ 11 billion to $ 284 billion.
Russia grew faster than the credit market (30% -40% per year). And its growth continues. Yes, according to
with a report published by marketing company @Technavio, the global alternative financing market will grow by 21% by 2022 compared to 2018 levels. Ernst & Young predicts market share
alternative financing in Russia by 2035 may exceed 37% of the total credit market.
The new Fintech wave in recent years has been partly driven by the growth of the micro, small and medium-sized enterprise (MSME) segment. And it is quite clear. Getting access to finance is one of
the biggest problems for MSMEs. According to the World Bank, underfunding of 400 million MSMEs in the world is $ 9.2 trillion and another $ 3.2 trillion needed to grow the MSMEs sector in order to create
jobs in developing countries to fight poverty. Expected growth in the SMEs sector (up to 137 million enterprises) worldwide in the coming years will trigger demand for loans by 34% or $ 12.4 billion ($ 9.2
trillion – demand from existing MSMEs and $ 3.2 trillion – from newly created ones).
Unmet SME lending needs provide tremendous growth opportunities for next-generation alternative lenders and explain the growing interest of developer professionals in
Fintech space. In the B2B segment for MSMEs, among the Fintech startups of the last 10 years, the LendingClub, OnDeck, Kabbage, CAN Capital, Dealstruck, Funding Circle, Iwoca, Zidisha can be distinguished. The last two are of particular interest: Iwoca often lends
micro-business, like Zidisha, which credits micro-business in developing countries. Top platforms
small business lending under the 2017 LendIt Industry Awards is included Ondeck, Kabbage, SmartBiz, StreetShares, Ascentium Capital, Iwoca. The biggest
money on the market in the hands of two US “unicorns” of scale IPO – LendingClub and OnDeck, which earn on effective credit processing with the help of Fintech-analytics. digital
US and European companies are quite successful in financing small and medium-sized businesses in the trade sector. Some are quite mature, but not as large as they are presented
above. Orbian, Prime Revenue, Taulia, C2FO,
Remitia, Oxygen Finance, Receivables Exchange, Platform Black, Market Invoice, Tradeshift, Tungsten, Network are involved in supply chain financing, accounts payable and accounts receivable financing, offering lower interest rates
rates for MSMEs.
It seems attractive to take advantage of market conditions and shake off the “sad” banking industry with its traditional financial products that are lagging behind market requirements and developing
technologies. Traditional banks are trying to keep up with this trend, but given the need for major transformations of legacy systems and their prospects in the MSME online lending segment
is still unclear. In an interview with Forbes, Rob Frohwein, CEO of Credit
Kabbage said: “… the point is not that banks do not want to finance micro and small businesses or that it is difficult and expensive. The fact is that the cost of banks to lend and service credit is the same
regardless of its amount, be it $ 5 thousand or $ 5 million. ” However, it is
does not change the fact that launching startups in this area is fraught with significant difficulties. Only fast-growing market leaders with simple and easy-to-understand business models succeed
bypass numerous competitors and succeed. Other alternative MSME lenders, according to Barclays Business Banking chief Ayn Rand, have gone bankrupt, as have
British fintech startup Wonga. One of the reasons for the failure of startups
competition with financial institutions.
Fintech companies seek to solve problems in the financial industry. Things like inconvenience banking, inefficient use of big data by financial institutions, and
the lack of a sustainable customer engagement model today gives Fintech startups a chance to rebuild from rival financial institutions and capture their market share. But the paradigm is “move
fast and break the old before the new “does not always work in a” regulated “area as finance. Many startups think they need to compete with financials
institutes. Fintech startups bring flexibility and technological know-how, and they believe this is enough to win the market. However, outdated financial institutions provide
resources and efficiency of processes that have been worked on for decades.
Understanding new technological realities, forming adequate management units and improving the risk assessment procedures in place allows banks and affiliated companies
Transform your own business models to capture your stake in the MSME online lending segment. As access is enhanced and technology improved, banks have doubled their efforts,
trying to get ahead of the technology curve and, more importantly, the ever-increasing expectations of its customers. A recent ISG Index survey shows that most large banks have increased their technology spending. Some banks have created innovative funds,
to sponsor or buy Fintech startups. Others collaborate with Fintech companies, gradually connecting them to their expanding ecosystem. An example is
collaboration between Kabbage and Scotiabank online platform. So sooner or later we are
we may see new market leaders in the MSME alternative lending segment who do not experience regulatory and business model problems.
Thus, there is no doubt that Fintech is one of the most transformative platforms for MSME owners in the 21st century. In this segment, Fintech is all
begins – the industry is booming and offering us more and more promising companies with interesting business models.
Fintech companies provide MSMEs with relief from traditional financial problems, and help reduce the informal lending market where private lenders are accustomed to
charge interest rates to unsuspecting borrowers by luring them into closed lending cycles. Due to its digital nature, this transparent financial environment helps MSMEs
join the mainstream. Therefore, Fintech has become an important pillar of national construction in developed countries, where up to 45% of GDP is provided by MSMEs.
Obviously, Fintech startups and financial institutions can work together and benefit from each other. Partnerships instead of competition can be a successful development strategy for a startup.
Traditional financial institutions can act as accelerators that can increase startup survival and take the business to a new economic level.
Head of Financial Services at PImPay
financial instruments, SMB