Signals | Start Path Desktop

Signals

Q4 2024

Focus on SMEs

Challenges today

www.statistica.com www. ec.europa.euwww.codebtech.com

1. 2. 3.

Pathways for success

Preparing for tomorrow

Supercharging SMES

How fintechs are fueling the next wave of small and medium business growth

Small and medium businesses (SMEs) are the lifeblood of the global economy. They account for 90% of enterprises and half of the workforce. But they are traditionally underserved, with poorer access to finance, technology and expertise than their bigger counterparts.

Fintechs are in a unique position to help. They’re flexible and innovative and, by their very nature, seek to address problems and fill gaps in the market that incumbent businesses can overlook. Not only that, they are often smaller businesses themselves, with an insider’s understanding of the problems and needs of such enterprises.

At the same time, many traditional financial institutions are looking for new revenue streams and starting to prioritize the SME segment as they search for growth.

In this edition of Mastercard Signals, we explore this evolving landscape, interviewing SMEs, VCs, fintech innovators and Mastercard experts to reveal the trends, fintech solutions, and strategies helping SMEs unlock their next chapter.

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a growing focus on smeS

Back in the early 2000s, as the dust from the dot-com boom settled, Irish entrepreneur Feargal Brady launched an IP telephony business. Building operations was challenging enough, but banking and payments were constant headaches. Fourteen years later, after selling to Comcast, he set out to fix those pain points. That’s how NoFrixion—now a Mastercard Start Path partner—came to life. “The internet has become an extremely important distribution channel for every business,” Brady said when we spoke with him. “But the payments technology hadn't evolved to keep pace.”

NoFrixion is part of a broader movement reshaping financial services. Across the globe, fintechs are emerging to address the long-overlooked SME market. They’re offering services to help SMEs manage cash flow, unlock capital, enable digital payments, and more. It’s a high-growth space—SMEs now account for 358 million businesses worldwide, while fintech revenues set to reach $1.5 trillion by 2030. SME-focused services alone are projected to expand 32% annually, hitting $285 billion by the decade’s end, BCG and QED Investors reported.

Estimated number of small and medium sized enterprises (SMEs) worldwide from 2002 to 2023 (in millions) 1

"Small businesses are the backbone of our global economy. They drive innovation, create jobs and help communities grow. Their success and entrepreneurial spirit are essential for our collective prosperity. That’s why when small businesses win, we all win.”

Jane Prokop | EVP and Global Head, Small and Medium Enterprises

The challenge in serving the SME segment stems from its inherent diversity — SMEs vary in every parameter imaginable: size, structure, business models, growth stages, industry verticals and more. Official definitions for SMEs can vary too: the European Commission describes them as having 10 to 250 employees, while the U.S. Small Business Administration categorizes small businesses as having fewer than 500. Annual revenue for a company categorized as an SME can be hundreds of thousands or millions of dollars. Despite their potential as customers, the size and diversity of the SME segment make it hard to effectively and profitably serve them. There’s no one-size-fits-all for this market and although large in aggregate, individual SMEs can be just as complex to manage as a large enterprise while the contracts are far smaller. As a result, SMEs still have unmet needs across financial services. For example, 40% of micro and small businesses in developing markets can’t access adequate financing. Hadar Siterman Norris, a partner at Israel-based venture capital firm Team8, summed it up:

“They’re underserved in every category, be it fintech, cyber, data solutions or anything else.”

Hadar Siterman Norris | Partner at Israel-based venture capital firm Team8

78%

Large enterprises have led the way in adopting digital tools, partly due to bigger budgets and larger IT teams, attracting many vendors. To grow, fintechs are now turning to the untapped SME sector.

Saturation of large enterprise markets

SMEs often face fragmented, convoluted financial processes. With 33% relying on four or more service providers, their workflows can be disjointed and inefficient, according to EY. This complexity opens the door for fintechs to offer integrated solutions better suited to this segment’s unique needs.

Prospects for consolidation

New tech, from automation and AI to open finance, is making previously unworkable business models viable. These advances are enabling fintechs to address SME challenges with unprecedented precision.

Technology advances

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Across our conversations with SMEs, banks, startups and investors, three key pain points consistently surfaced as critical challenges of SMEs: A dearth of suitable solutions and tools lack of access to credit and cyber vulnerabilities.

“SMEs in many cases end up being blind and have limited visibility of their finances and cash flow, which is critical”

Michel Zaidler | Senior investment associate at Quona, a global VC firm

Adding payments into the workflow

Unlocking access to capital

Enterprise-grade tools for SMEs

Digitization and automation

Adding payments into the workflow

Several startups in our Start Path program are looking to address SMEs’ needs for financial tools by integrating payments, credit access and other financial services directly into an SME’s business management software, also known as an enterprise resource planning system (ERP). Big businesses typically use Oracle or SAP, but there are dozens of different kinds of ERP systems for SMEs, based on their sizes, industries and regions. It’s challenging to create software that’s flexible enough to fit into many of these different systems, but these startups have devised ways to overcome this. One strategy is to build a platform that comprehensively addresses a specific industry’s needs, including payments. For instance, Toast – a Massachusetts-based company that went public in 2021 – provides a platform that includes hardware, food management software and payments for restaurants. Another strategy is to build payments software that’s flexible enough that it can integrate into a variety of ERPs, regardless of the industry.

One startup building in this space is Monite, a Start Path partner based in Germany. Co-founder and CEO Ivan Maryasin said that the SMEs he’s working with were looking for a way to plug payments and finances into their existing systems of record, not another standalone piece of software.And so, he works directly with about two dozen SME platforms for various industries, such as OpenSolar, which offers business management software for solar installation companies. Monite’s API integrates into OpenSolar’s platform, adding in cash flow management, accounts payable, accounts receivable and other tools.“It's just new markets,” Maryasin said when we spoke to him."There's thousands of accounts payable and accounts receivable companies. Almost none of them actually offer you an embedded service. And so embedded services are very new in this market.”

Leadership: Ivan Maryasin, CEO and co-founder Based in: Germany | Founded: 2020Core offering: Software that embeds accounts receivable and accounts payable into business management platforms that serve SMEs. Origin story: Maryasin helped build a European neobank that focused on SMEs, and he was responsible for driving business growth. After the neobank was acquired, he sought to use his experience there to focus on value-added services, which he viewed as both a way to build up a loyal customer base and grow the value of each of those customers to ensure profitability.

NoFrixion offers an API that integrates into invoicing or business management software and helps SMEs manage all their incoming payments. Brady, the CEO and co-founder, said NoFrixion’s software enables SME and large enterprises’ finance teams to view all their accounts receivable information on one portal that automatically reconciles payments and is easily searchable. Users also can create an unlimited number of payment accounts and automatically direct new payments into each specific account, making it much simpler to manage the flow of payments. For instance, say there’s an engineering association that has thousandsof members who pay dues every year. Some pay by card, some pay by bank transfers, some have their employers send dues as one bulk payment. For SMEs, it can oftentimes take months to untangle all these payments, figure out who paid, who’s late and if the right amount was paid. Using automation to move payments into individual accounts enables these SMEs to find all those answers much more quickly.

Leadership: Feargal Brady, CEO and co-founder Based in: Ireland | Founded: 2020 Core offering: Software that integrates into invoicing or business management software to allow finance teams to identify and track their customers’ payments. Quote: “We believe that the bank of the future is a software company – a financial institution which is effectively a software company.”

Both these examples from Monite and NoFrixion reveal the potential for all parties involved to benefit. The business management software companies gain new payments features they can bake into their platforms, making their tools more valuable to their customers. Those SME customers can focus on using fewer software systems to manage their operations. And these new fintechs can forge new business models and grow into new markets. These types of ERP-embedding fintechs sit at a locus of valuable financial information that VCs find attractive. When assessing which fintechs to invest in, Quona’s Zaidler said it’s vital to focus on the ones that manage accounts payable and accounts receivable, because they’ll have the best understanding of an SME’s cash flow and, as a result, can use that information to offer loans and other financial services based on a company’s creditworthiness.

“Usually there’s very limited data to underwrite SMEs. If you have software that accesses that data, you are at an advantage...Being in the flow of payments is super important.”

Michel Zaidler | Senior investment associate, Quona

These fintechs are coming into this market at a particularly advantageous time. A 2022 report from Adyen and Boston Consulting Group found that digital platforms are being used by 75% to 85% of SMEs, up from 30% in 2018. There are strong signals that there’s a lot of potential runway for growth, with the global ERP market expected to surge from $43.7 billion in 2020 to $117.1 billion by 2030, driven largely by increased demand from SMEs, according to Allied Market Research.

The lack of access to credit is both a huge pain for SMEs today, but also a big opportunity for fintechs and banks who can fix it. Showing how significant an issue this is for SMEs, this year Mastercard surveyed 300 SME executives about their business needs, asking what the most important factors were that drove their decisions to work with a card issuer. No. 1 on the list: accessing a higher credit limit. When banks have partnered with fintechs to provide SMEs new tools to access credit, it's proven to benefit those SMEs and also the banks. In one example from China, researchers found an increase in both SMEs’ access to financing and banks’ operational efficiency thanks to digital banks like WeBank and MyBank.

Another example is Freely, which allows food distributors to accept credit cards, enabling their restaurant customers to have more cash on hand. Founder and CEO Ahmed Nawash explains that restaurants are always looking for working capital, but their wholesale distributors typically only want to take ACH payments since food margins are so thin that they can’t accept credit cards while still making a profit. Nawash’s company is working with Mastercard to create smart payment-network routing capabilities for these businesses, enabling them to accept cards without eating into their profits. The next step for Freely will be offering a credit card these distributors can provide their restaurant customers. These cards will include cashback benefits for the restaurants and no fees for the distributors, with fees generated for Freely when these cards are used anywhere else.

Leadership: Ahmed Nawash, CEO and co-founder Based in: U.S. | Founded: 2023 Core offering: Smart payment-network routing to allow food distributors to accept credit cards from restaurants. Origin story: Founders previously worked at a regional U.S. bank, with Nawash focusing on fintech partnerships. He then went to a restaurant management software company, where he worked with food distributors and saw a need in the market for more payment options in the food industry.

One example is Uplinq, which sells automated AI software that banks use to assess whether a small business applying for a loan is creditworthy or not. It uses alternative credit scoring that can pull from 10,000 different data sources, including payroll data, tax data and accounting data. Co-founder Patrick Reily said if a factory claims it’s operating 24/7, Uplinq can verify this information using satellite data from NASA. Uplinq’s AI-powered system, which has been trained on 17 years of data and loan applications, can then provide critical insights for financial institutions. Uplinq’s credit scoring system has already been used to derive $1.4 trillion in loans. “Our end goal is to be the credit-scoring agency for small business globally,” Ron Benegbi, CEO and co-founder, said, “because small business credit scores today, they suck.”

Leadership: Ron Benegbi (CEO) and Patrick Reily, co-founders Based in: U.S. | Founded: 2020 Core offering: Provides banks with AI-powered software that enables them to assess whether an SME looking for a loan is creditworthy. It can access 10,000 different data sources to use for its analysis. Insight: Typically, banks won't quickly dive into new startup services. Uplinq makes it easier to kick off a partnership by creating small pilots for banks to provethe value of its software.

Unlocking access to capital

Banks have already figured out how to use automated systems to approve loans, credit cards and bank accounts for millions of consumers. They’ve also figured out how to serve big companies, since hiring more people to manage these hefty loan applications is still profitable. But SME loan applications can be as complex as big business applications, making them to be harder to review while still maintaining profitability. Fintechs are helping to simplify the loan process, so financial institutions can review loans more efficiently and ultimately approve more loans to SMEs.

Adding payments into the workflow

Unlocking access to capital

Enterprise-grade tools for SMEs

Digitization and automation

Meanwhile, Omnevue offers ESG auditing software, providing data that’s becoming increasingly valuable for SMEs. Omnevue’s software connects to an SME’s business apps and automatically starts tracking ESG data, such as carbon emissions, renewable energy usage and waste recycling. These companies can use this data to access green loans, share with government regulators and provide to investors and employees to prove sustainability goals are being met. CEO Daniel Jeczmien said big companies have the resources and staff already to report their ESG numbers, but SMEs have lacked the tools and capabilities to gather this kind of data. Jeczmien says ESG-related trigger events are bringing in more and more customers. For instance, a company could be in the process of being acquired and needs to provide three years of statistics about its carbon footprint to the buyer. When these events happen, SMEs have been seeking out and finding Omnevue so they can audit their data. “No business owner or director wakes up on a Monday morning and goes, ‘I'm going to audit a new set of data,’” Jeczmien quipped. Despite that, the big changes in sustainability regulations and expectations of corporations are proving to be good for business. After launching its first service in 2022, Omnevue has about 500 customers across Europe.

Leadership: Daniel Jeczmien (CEO) and Marc Lepere (chief science officer), co-founders Based in: U.K. | Founded: 2021 Core offering: “Think of us as the Quickbooks for all things ESG,” the company says on its website. It offers accounting software that enables SMEs to analyze and understand their ESG data, such as their carbon footprint, water usage and staff diversity.   Insight: Omnevue intentionally avoids offering its services to bigger companies, recognizing it would have to compete with larger players like Deloitte and KPMG. Instead, it focuses on the longtail of SMEs, which typically can’t afford to pay for those larger players but are still looking for ESG data.

Quartix leverages reverse factoring to help SMEs free up cash flow. This lending mechanism essentially works as a form of short-term borrowing. When an SME agrees to buy from a supplier, that SME can negotiate to make a payment at a later date, for instance up to 30 days. Reverse factoring allows a financial institution to make the payment on behalf of that SME directly to the supplier. The SME can then work with the financial institution to extend the number of days they need to make the payment, helping them more easily manage cash flow. Quartix offers its services directly to about two dozen customers, including manufacturers and construction companies. The company also provides its reverse factoring software to several U.S. financial institutions.

Leadership: Dror Polak (CEO) and Noam Mani (chief revenue officer), co-founders Based in: U.S. | Founded: 2016 Core offering: Reverse factoring, which works as a form of short-term borrowing, allowing suppliers to be paid faster while giving buyers more flexibility. Insight: Mani says that although most banks don’t have large fintech innovation teams, they can essentially “innovate without innovating” by teaming up with the new crop of fintechs looking to reach these banks’ SME customers.

Enterprise-grade tools for SMEs

Large enterprises today have access to sophisticated financial tools that aren’t available to SMEs. Tailoring these tools for SMEs can be arduous, because they often need to be retrofitted or rebuilt from scratch to serve a variety of SME industries and a multitude of business management systems. This situation has resulted in many SMEs being left to manage daily functions using manual processes or working without certain types of data or digital tools that would’ve been beneficial if available. Despite those challenges, innovative startups are finding ways to take successful models developed for big companies and refashioning them for these smaller businesses.

Adding payments into the workflow

Unlocking access to capital

Enterprise-grade tools for SMEs

Digitization and automation

Noam Mani | CEO and co-founder, Quartix

Both Omenvue and Quartix say they’re not facing much competition, but they still have many challenges as they pioneer novel services for SMEs.

Another strategy is to create mobile-based business management apps. Uome, based in England, is among the many startups building in this space, with the company offering an app that lets entrepreneurs run their businesses on their phones. CEO and founder Jason Halstead said he launched the app in 2022 and now has more than 2,000 customers, many of them barbershops, tradespeople and other service providers who previously used little or no digital financial services to manage their businesses. One of Uome’s core features is its “conversational commerce” tool, essentially a chat function that integrates service options, invoices and payments. This way a plumber can share an estimate for a service call and a customer can accept it, all within the chat. Uome’s e-commerce tools allow a business to provide their entire catalog of services and checkout on their Facebook storefront – no separate website needed.

Leadership: Jason Halstead, CEO and founder Based in: U.K. | Founded: 2022 Core offering: App for U.K. and U.S. entrepreneurs to run their businesses on their phones, providing invoicing, financial statements, e-commerce and payments. Uome also offers APIs that can embed in a financial institution’s banking software for SMEs. Quote: “The way to uplift the community is to support its businesses. As the businesses in that community grow, then prosperity in those communities can grow as well. So this is a way of me trying to support those diverse communities as well to encourage business growth.”

Digitization and automation

As with many other dynamics in the business world, digitization tools have reached large companies first but many are now making their way to SMEs. Many fintechs are focused on automating and digitizing SME functions. Some are looking at enabling more digital payment options for both digital and brick-and-mortar merchants. For example, the startup Pye offers self-service kiosks for restaurants and convenience stores, while Clover, SumUp, Square and many others offer digital point-of-sale devices and terminals for small businesses. Meanwhile, e-commerce tools are readily available through tech players like Shopify, GoDaddy, Wix and Squarespace.

Adding payments into the workflow

Unlocking access to capital

Enterprise-grade tools for SMEs

Digitization and automation

the big takeaway

There isn’t one strategy to crack the code of serving SMEs – there are plenty of ways to approach this market

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For the last decade, financial regulations involving SMEs have broadly trended toward fewer tight restrictions, as governments have sought to welcome new players into financial services. The result has opened the SME market to more competition, lower costs and therefore more involvement from fintechs. For example, regulatory bodies around the world have pushed for more competition among financial institutions that serve merchants, lowering the cost of accepting payments for SMEs and creating an opening for fintechs to join the fray. Similarly, many regulatory bodies have enabled fintechs to provide payments services without needing a banking license. Regulations for approving loans have broadened, as well, with lenders now able to provide loans using a wider variety of data – such as a content creator’s social commerce traffic and sales – opening up access to credit for more SMEs and creating new partnership opportunities between traditional banks and the fintechs that can provide those new forms of data. For banks, all these changes on the regulatory front have made focusing on the SME space and partnering with fintechs to reach these SMEs more fruitful than in many years past.

Benefit from evolving regulations

Balancing how much or how little to customize software is vital for SME-focused fintechs. Too much and you may not reach profitability, too little and you aren’t reaching enough customers. In interviews, this balancing act was largely addressed based on each fintech’s specific markets. For example, Monite CEO Maryasin noted that his company will focus on offering new templates and software customizations only through ERP platforms it partners with and not directly for any given SME. That allows Monite to target a lot of customers without getting bogged down with customization requests from each one. On the other hand, Freely works with seven food distributors, each with over $100 million revenue. At that size and scale, Freely is able to customize software for every one of its customers.

Find the right balancefor customization

Form distribution partnerships

Fintechs and financial institutions are increasingly partnering to create new services. These partnerships have focused especially on serving consumers and aren’t common in SME segments. Four out of five of the top 100 banks by asset size have partnered with at least one fintech company, according to a 2023 McKinsey, up from 55% two years prior. However, there’s potential for both sides to benefit from these connections. In the SME space, small startups are stepping in with innovative models to address the unmet needs of SMEs. Meanwhile, larger financial institutions have big customer bases but tend to be slowed by regulatory and compliance constraints, legacy infrastructure and higher operating costs. There is a case to be made to develop a joint model. Such partnerships could provide improved digital capabilities, more flexible solutions (including credit) at a lower cost, more innovation and customization, and faster time to market.

The big push today is focused on the most obvious needs across the SME space: simplifying an often-disconnected mix of software platforms by adding payments into the workflow, driving more access to credit, introducing new enterprise-grade tools, and making paper-based and manual processes digital and automated.

But we can already see the next steps in the development of new solutions in this space. Unsurprisingly, many of the new and more sophisticated tools emerging revolve around AI. Zaidler, from Quona, said he’s seeing early-stage companies developing generative AI-powered chatbots for SME distributors that can reach out to their customers on their behalf and – not simply remind them of a late payment – but negotiate with them in real time on payment terms. That will save these distributors time and money they had been spending to chase down payments. Meanwhile, Uome is creating a virtual sales assistant that can be trained on all an SME’s products and services. A customer can ask open-ended questions, like: “I’m hungry, what’s for sale?” Mastercard this year ran an internal survey of SME leaders to learn more about their interests in using gen AI. We found that 58% were interested in using gen AI, though less than a quarter of them were very familiar with the technology. Respondents said they would see benefits from using AI in time-consuming tasks, including accounts receivable management, inventory management and financial reporting.

The SMEs that embrace this tech evolution and the fintechs and traditional players that are best positioned to enable it are the most likely to win in this new landscape. Innovative startups like NoFrixion, Freely, Quartix, Omnevue, Uome, Uplinq, Monite and many others will be able to support their customers through all these changes and make sure that the millions of SMEs today and millions more that haven’t yet been created aren’t overlooked and can benefit from the next wave of fintech innovation.

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Mastercard small business

Small businesses are the heart and soul of their communities and the foundation of the global economy. At Mastercard, we are deeply committed to supporting their growth and resilience. For decades, we’ve been dedicated to empowering every business and their broader communities, meeting them wherever they are in their digital journeys with solutions that are reliable, effective and consistently ensure safety. Our work goes beyond transactions – our network of community leaders, banks, fintechs and merchants helps small businesses access capital, go digital and grow. We understand small business owners’ unique needs and leverage every opportunity to fuel their growth. Mastercard has surpassed its goal of providing 25 million women entrepreneurs with solutions that help them grow their businesses. From data-driven solutions, loyalty programs and AI-powered tools that simplify the daily lives of small business owners to philanthropic programs that drive financial inclusion, Mastercard is continuously innovating so entrepreneurs can focus on what matters most: running their business. When small business thrives, we all thrive. When small business wins, everyone wins.Learn more about Mastercard’s SME offerings here

Produced by Ben Fox Rubin, Nima Sepasy, Scyrine De Veaux and Katie Godwin, in partnership with Sabrina Tharani Libby, Carlos Arango and Fiona Hyland. Design by David Baxter.

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Sources

CHALLENGES TODAY

pathway for fintech's success

Preparing for tomorrow

of U.S. financial institutions said they plan to expand services for SMEs, including payments, business lending and merchant services, according to the Jack Henry 2024 Strategy Benchmark.

“In the middle market, it's very hard to build a business... I would say that the opportunity is still enormous.”

"If you don't have the right grounding and if you really don'tactually understand how to be a businessperson, even though the products and services that you provide are great, it will never grow, it will never scale... So the purpose for Uome was all about an all-encompassing support for those businesses so that they can effectively level those businesses up.”

Jason Halstead | CEO and founder, Uome

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Over the past decade, regulations have been updated worldwide to encourage competition. Governments in Argentina, Europe, Chile and the U.K., among others, have allowed fintechs to offer payment services to SMEs without requiring a banking license.

Regulatory shifts

As fintechs eye this promising market, global funding for SME-focused startups has tripled, fueling innovation and expanding service offerings.

Increased Funding

2030

2022

global funding by fintech segment total value ($bn) 2

Embedded Finance/ Baas

$4bn

$1.2bn

$2.5bn

$1.3bn

$3.5bn

$5.2bn

$3.1bn

$9.9bn

+70%

+67%

+61%

+57%

+52%

+48%

+15%

-11%

$7.6bn

$3.4bn

$8.2bn

$11bn

$6bn

$11.6bn

$3.5bn

sme and corporate services

INVESTMENTBANKING &CAPITAL MARKETS

Wealthmanagement

Payments

Daily  banking

lending

Operations & infrastr-ucture

The result? Today’s SME market is unrecognizable from a decade ago, presenting unprecedented opportunities for those who can tailor their solutions to these diverse businesses’ needs. In this fast-evolving landscape, understanding and addressing SME pain points is key to unlocking their potential.

The following section delves into a handful of the key challenges fintechs are addressing for SMEs today.

BUILDING NEW SOLUTIONS

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And yet another strategy is to look at the specific payments behaviors of SMEs and find solutions that make time-consuming or manual processes more seamless.

All this information enables a bank to get a clearer picture of a business within its ecosystem, which ultimately can help it provide more loans for SMEs by speeding up the application process and cutting down on bad loans that aren’t paid back.

"We are working very closely with financial institutions across the globe, to help them improve their value proposition to SMEs. We are keen to recommend improving time to market by fostering fintech ecosystems and partnerships"

Giorgio Manoni | EVP Advisors & Consulting Mastercard

Over the past decade, Start Path -- Mastercard's global fintech engagement program -- has worked closely with more than 400 companies that are building next-generation technologies. We help these startups scale by giving them access to Mastercard’s network of customers, products and partnerships. This program has expanded to include Start Path cohorts specifically focused on blockchain, open banking, small business, inclusion and payments acceptance. Read more here. Mastercard’s global team of experts acts as an extension of a fintech’s team to build a customized set of objectives specific to the company that maximizes impact for them and Mastercard. This accelerates time to market and revenue and delivers best-in-class customer experiences. We team up with these fintechs to learn from each other, using Start Path to infuse new ideas into the financial services industry, expand the digital economy and bring these new business models to our customers. In turn, we give these startups the best tools and practices, new connections across our ecosystem and, wherever possible, support them in solving their most pressing challenges so that they can keep growing.

Start Path

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Opportunity drivers

In addition to the revenue potential from solving these needs, the following drivers are contributing to the growing attention on the SME market:

Lack of SME specific services and tools

There’s been a long-standing gap in services and tools that meet the needs of SMEs. Consequently, SMEs are often slowed down by having to use multiple platforms and tools – for example, one to handle work orders, one to handle billing and yet another to handle invoicing – which are oftentimes unconnected.

SMEs often lack tools and data that could increase visibility over their finances and cashflow, such as connected tools that could show them the timing of receivables and payables, which customers are late paying them and what products and services are making them a profit.

SMEs are being left behind when it comes to accessing the latest and most transformative technologies, putting them at a further disadvantage compared to larger entities. The more complex the technology, the less likely it is that SMEs adopted them, according to the OECD. Sophisticated tech – specifically, big data, cloud computing and AI - are the least adopted by SMEs.

Mastercard Foundry's June 2024 interviews with small businesses revealed that they are using up to four different tools to manage their invoicing alone.

of SMEs rely on more than four different financial service providers, EY reported

33%

“We even use Canva when we want to create a template for an invoice. But they don't have any other functionality within invoicing, … it's nice when it can all happen under the same roof or the umbrella of one [solution]”

- Wellness Center Owner

Vulnerability to disruption

Cybercriminals frequently set their sights on SMEs, seeing them as easy and profitable targets. Unlike larger corporations, SMEs often lack the robust defenses to ward off these threats, even though the data they hold—customer information, financial records, and intellectual property—is just as valuable. Many SMEs have rapidly shifted to online operations but without the necessary security measures adding to their vulnerability. Consider these stats on cyberattacks against SMEs:

“We’re seeing incredible innovations today. We team up with some of the most promising startups working in SME services so we can learn from each other, help them scale up and find ways to keep developing this sector so more SMEs can digitize and grow."

Sabrina Tharani | SVP, Fintech & venture partnerships | Leader Mastercard’s Start Path program

Sources of financing for SME’S Globally 3

Credit unions

30%

Business partners

27%

Family and friends

43%

Personal Savings

28%

Lack of access to credit

Many SMEs are actively seeking better access to credit, either through loans, revolving credit lines or business credit cards. But many face challenges proving they are creditworthy. For example, in the U.S., the credit approval rate for the largest companies – with over $10 million in revenue – is 88%, while approval rates for smaller firms ranges from 31% to 58%, the U.S. Federal Reserve reported this year. The lack of access to credit for SMEs can have several significant consequences including cash flow issues, limited innovation and competitiveness, and dependence on informal lending – leading to a lost opportunity for traditional lenders.

attack frequency

SMEs represent 43% of cyberattack victims annually

43%

readiness

Only 14% of SMEs feel prepared to defend against cyber threats

14%

FINANCIAL LOSS

SMEs typically lose an average of $25,000 per attack

$25,000

The financial impact of cyberattacks can be devastating, even pushing some SMEs toward bankruptcy. Cyber insurance and cybersecurity tools can offer critical protections, helping these businesses mitigate losses and fend off attacks.

The above represent three primary headwinds in the SME space, but there are a number of additional unmet needs and opportunities being addressed by fintechs today. Befitting the SME landscape itself, we found a variety of business models, distribution strategies and services that these fintechs are developing to address top SME challenges and opportunities.

Fintech firms are also leveraging technology to bridge the gap between financial services and cybersecurity for SMEs. By offering streamlined payment options and integrating robust security measures, they make accounting and financial management more reliable and affordable. This approach not only simplifies financial processes but also enhances the security posture of small businesses.

Building new solutions

Start path

US coffee wholesaler small business explained: “I think [Gen AI] is definitely a useful tool. I have used it to create certain business documents, or to explain business or legal documents worded in ways that I don't fully understand… and also create a document ... or email that I want to send out.”

Mastercard Foundry interviews with small businesses in June 2024

“The breakneck pace of technological improvements right now might actually be considered slow a decade or two from now... It’s why we need to work closely with SMEs to support them through all this change.”

Ken Moore | Mastercard’s chief innovation officer

Ransom payments

In 2023, 65% of targeted SMEs paid a ransom

65%