The value of SMEs Within Financial Services Technology
06.08.16 |Opinion Pieces

The power of small and medium

The world of financial technology (FinTech) often moves a little more slowly than other industries, with antiquated and out-dated finance systems still dominating the sector. This is due primarily to a conservative mindset that’s prevalent amidst senior managers, and one that’s deeply averse to any form of change that could potentially introduce risk. All of which means that new tech, and new innovations, can have a hard time becoming established, irrespective of the benefits on offer. Whereas the tolerance of old technology stems from its origin: large-scale, ‘household names’ in the technology space.

Businesses typically choose these types of companies because they’re either unaware of any alternatives, or because they’re untrustworthy of other choices due to the sensitive nature of financial data. Yet such a position masks a critical problem: established companies have no direct incentive to update their infrastructure, or provide more cutting-edge technology solutions for their customers. There is light at the end of the tunnel however, as several forward-thinking companies are beginning to shift their thinking when it comes to adopting newer, more user-friendly FinTech solutions.

Importantly, many of these solutions are emerging from the small and medium enterprise (SME) sector. SMEs reflect the new wave of technology development and results-driven solutions. And because of their commitment to cutting-edge tech, they continue to provide access to the very latest advances – with the highest level of security to keep users’ confidential data secure at all times. And what’s more, SMEs’ smaller-scale approach to business allows them to provide a direct, honest service to their customers, and to achieve a level of personalisation most enterprise level operations can only aspire to.

So does size really matter?

Why SMEs are better for FinTech

What we all know is that financial services cannot afford to be held back by obsolete solutions. This viewpoint sits at the heart of the Financial Conduct Authority’s latest push toward embracing ‘disruptive technology’ within the industry. That’s because such disruption allows for, indeed demands, macro-scale pushes forward in terms of both capabilities and thinking. That’s why the FCA has embraced a climate where developers can actively pursue disruptive technology to improve the state of the industry, and to foster better competition within the industry.

In many cases, the best emerging tech is to be found in the SME sector – with standout solutions that offer the following differentiators:

A commitment to solution-driven tech

As mentioned, SMEs often remain at the forefront of technological innovations. These are the teams that often come together around a core discovery, and as they form into a viable business their customers can expect a high level of dedication to providing the best possible solutions. In most cases, the resulting SME businesses are focused on solving a particular problem. For example, a recent issue for FinTech has been an inability to provide customers with an integrated mobile and web-based platform – a problem ‘fixed’ largely by dynamic new entrants into the market. Such developments highlight the responsiveness and commitment found inside SMEs, rather than larger FinTech firms.

Experience a more dedicated service

Small-to-medium-sized businesses are often comprised of a compact, and highly skilled team dedicated to a modest number of active customers. This holds especially true with the SMEs within start-up firms just beginning to integrate their FinTech solution into the market. This type of smaller-scale approach allows for a far more personalised customer experience, and in many cases customers receive a greater level of account assistance than they could possibly expect with at an enterprise-level firm.

Working with the latest innovations

The sharp focus SMEs offer into FinTech innovation is emphasised by the FCA itself. According to Christopher Woolard, Director of Strategy and Competition for the FCA, FinTech developers should be making a much harder push toward the aforementioned disruptive technology. [ i ] And this push will move everyone toward a much more user-focussed and competitive financial sector.

As most businesses already know, the more established FinTech companies lack a major incentive to upgrade their services and adopt newer tech that reflect the emerging needs of the industry. However, through the new breakthroughs being delivered by SMEs, the latest generation of FinTech is beginning to accept its role as a source of industry transformation. The end result from all this innovation will be a far more powerful and comprehensive set of FinTech resources available to organisations, which in turn will help them both move forward and remain competitive.

Meeting the same compliance standards

Even though they are obviously smaller than enterprise vendors, SMEs must follow the same rigorous compliance and regulatory standards set forth by the FCA. These standards include how to contact and communicate with customers, how to resolve complaints or disputes, protecting customer information/maintaining confidentiality, and adhering to all applicable laws, regulations, and legislation related to this industry. Without this type of compliance, SMEs will soon stop operating, and will therefore undoubtedly place a strong emphasis on ensuring their solutions meet all appropriate compliance standards.

Security you can trust in

The topics of data security and the effective mitigation of risks are frequently to be found in the ‘top ten’ of business concerns listed by companies both large and small. This leads to (indeed is the major contributor to) a major obstacle to deploying SME innovations: trust. Or, put another way, a lack of confidence in the capabilities of the SME to securely store their sensitive customer data, which leads to scepticism in the overall package.

While this type of thinking is understandable, the truth of the matter is much different. SMEs bring together the latest advancements within technology platforms, including integration of much more stringent and frequently updated security protocols. Yes, older legacy systems will come equipped with security, but in many cases this security may not be enough to prevent large-scale data breaches – which can be confirmed by a quick analysis of recent breaches within large technology companies. By keeping their focus on cutting-edge tech and security, SMEs are well positioned to provide the safety many companies need to feel reassured. And their commitment to the latest innovations will only continue to reinforce this focus on security, and ensuring it sits front and centre in all future developments.

New FinTech: A slow but steady process

SMEs are already showcasing the power and potential of innovation to help reappraise what’s possible in the world of FinTech. And as they continue to demonstrate, there’s no reason for companies to remain apprehensive about utilising their services. Almost the complete opposite in fact, as they provide customer-focused solutions that are far more aligned to the current state of the industry – as well as leading the change agenda.

One example of this progress comes with financial powerhouse JPMorgan Chase’s adoption of smaller-scale online lending platform OnDeck. JPMorgan easily had the resources to develop this platform internally or to choose a larger-scale tech firm to develop it. Instead, the company recognised the potential of OnDeck’s straightforward online lending service for small businesses and embraced it – thereby enjoying many benefits as a result. [ ii ]

Of course, for many companies the adoption of new FinTech cannot occur with a simple flip of a switch. In many cases, technology shifts must occur progressively and transitionally over time. Without an effective change management process, there would be no sustainable way for any type of new platform to succeed. This holds especially true within FinTech solutions where highly sensitive customer data must be properly accessed at all times. Accordingly, new platforms must be progressively integrated to ensure the processes it enables operate with both security and usability in mind. [ iii ]

Over time, new technology will continue to take hold and transform all industries – the finance world included. SMEs reflect the current state of the industry in providing the best solutions at the cutting-edge of technology. That means there’s no need for businesses to continue choosing old, out-dated, and obsolete FinTech just because it comes from a larger, more ‘credible’ enterprise. Today, innovation is largely defined by the factors of flexibility, agility, and a nimbleness to embrace new ideas and breakthroughs – qualities that equally define the world’s leading SMEs.

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[ i ]

[ ii ] e-big-banks-but-can-they-win.html?_r=0

[ iii ] Allen, Kathleen. "Bringing Technology to Market: a Macro View of Technology Transfer and Commercialization." International Journal of Entrepreneurship Education 1(3): 321-358, 2003.

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