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An Introduction to Fintech for SMEs

Learn about what 'fintech' companies are, how this industry is growing and why the fintech sector matters for small and large businesses alike.
An Introduction to Fintech for SMEs

Updated on 14/10/2020

Fintech companies have been getting a lot of attention during the coronavirus lockdown. After all, while brick-and-mortar shops are either closed or running a reduced service, financial services that are powered by online technology can often operate without constraints.

But if you don't work in fintech, you may not be completely familiar with what it involves. The 'fintech industry' describes a huge range of different companies, from online business loan providers and blockchain technology providers to stock trading apps, so understanding exactly what classifies as a fintech and how fintech firms impact people's daily lives isn't always easy.

That's why this article will serve as an introduction to fintech for small business owners and business enthusiasts alike. It will attempt to shine a light on the key areas within fintech, while also highlighting some useful industry trends and providing our own insight into what it's like to work in a fintech.

What is fintech?


If you have ever checked your bank statement online, transferred money using an app, or paid for your shopping with a phone - you've experienced fintech. Put simply, fintech means 'Financial Technology'.

It describes an entire sector of businesses who are in some way involved with delivering financial services using advanced digital technology. At Esme, our product offering is an entirely online business loan, so we fit neatly into a 'fintech' classification, whereas a traditional bank from the 1950s might not as they may not use technology to automate decisions and processes. Nowadays, though almost all banks and lenders are fintechs!

Another example of a popular fintech company you may have heard of is Mettle, who offer a free banking app for businesses to manage their day-to-day finances (although there are many other providers out there to choose from and eligibility criteria applies – this is covered at the end of this article).

With a rough idea of what a fintech is in mind, let's take a look at why the fintech industry matters to UK businesses.

How does the fintech industry add value?


The government's UK Fintech – State of the Nation paper says the following about the role of fintech in the UK:

"The UK is the leading global FinTech hub with a thriving ecosystem and international talent pool spanning the whole country. With an increasing number of FinTech firms exporting globally from the UK, we are continuing to set the global standard on the application of technology, and more broadly, innovation in financial services."

It also mentions how one of the core benefits of financial technology is enabling 'customer empowerment in financial services'. That's really what fintech is all about; answering the question of 'how can we use innovative technology to upgrade and improve our banking, lending and money management services'?

What impact does fintech have on businesses?


For businesses, a big part of the attraction of fintech is the simplicity it could potentially bring to your financial management and accounting. Cash flow apps, for example, can host all of your financial data within one app, which could help you get quick access to smart insights surrounding your business' finances - such as creating a cash flow forecast without having to do all the manual input work.

Alternatively, applying for business finance (such as a business loan) could be made easier for the applicant if the entire application process were paperless, which is an advantage that many online lenders, including here at Esme, can actually offer. Fintech could help small businesses by making the process of managing, moving or borrowing money more streamlined and convenient. Not to mention that paperless applications are also good for the environment!

With the role fintech plays in the business environment explained, let's look at fintech businesses themselves to build a basic understanding of their nature.

Why work in fintech?


So, what separates a company within the fintech sector from any other company? Is it a good space to be in, trade in and even work in?

Yes, we like to think so. Fintech businesses often seek to combine the best of the best in traditional theory knowledge (within a specific business discipline) with the most effective and innovative technologies.

This means that fintech companies often need people with a truly diverse range of skills and capabilities. With tech at the heart of their operations, fintech companies can often attract a sociable, young, and approachable individuals which can encourage interactive environments where collaboration on most projects is a key to success. Having more traditional financial advisers lean on tech specialists and vice-versa can create an enjoyable atmosphere, so people with good communication and teamwork skills may thrive in fintech companies.

Is it wise to start up a new business within fintech?


One of the advantages of starting a new business within fintech is that you may not need to own highly valuable assets, huge manpower or hundreds of years of history to succeed. Instead, the ability to produce a high quality technological solution, the knowledge to code a product that adds value to people's lives and the business sense to take that business forward are some of the key ingredients which can predict success for small business owners starting up within fintech.

If you have a great product that meets customer needs well then that's a good starting point for moving into the fintech industry. However, there will undeniably be some challenges in joining this sector, though. The financial services sector is highly regulated in the UK, so it's worth reading up on this in detail and updating yourself with the latest FCA and PRA guidelines before committing to either a new venture or expanding your current venture into the fintech space.

All the regulation surrounding fintechs, though, is vital in ensuring the success of the UK financial services sector into the future. It helps to prevent corruption, ensures that business practices are lawful, and ultimately ensures that all business practices serve all customers' best interests.

Fintech businesses are worth having on everyone's radar, but there are a couple of further considerations to note before you start exploring the option of starting one of your own. For example, if you have a revolutionary idea but no technical knowledge to actually build the digital solution your idea requires by yourself, then you will need to rely on partnering with skilled developers and outsourcing where appropriate. If you're able to build relationships on mutual trust and compensate for your weaknesses/knowledge gaps, though, you may experience success within the fintech space.

The fintech industry can be a great place for businesses to start up in, though, if a team has unique skills that may be advantageous to the industry specifically, for example the technical ability to code a great product. It's possible to bring a well-coded new product to market and make it operational if you're willing to put the effort in. What's more, there is also lots of investment activity within this space so there could be different opportunities to rally people behind your business proposition and secure investment.

The future of fintech


With coronavirus creating a greater dependency on technology in general, it will be interesting to see how the future of fintech is affected by events in 2020. EY's annual fintech census revealed in 2019 that the adoption rate for the fintech in the UK was at 18% for small and medium-sized businesses.

That means that roughly one in five businesses were embracing fintech solutions last year, having acknowledged the potential advantages they could unlock for their small businesses. With 2020’s report yet to be released, we can only speculate as to how the fintech landscape will develop and grow.

Some key stats to be aware of include:

  • The government predict that there are currently around 1,600 fintech firms in the UK, and estimates that this will more than double by 2030.

  • 76,500 people work in fintech companies UK-wide, and this is expected to grow to 105,500 by 2030.

  • There was $3.3bn of VC, PE and CVC investments into UK fintech in 2018. These stats paint a bright picture for the future of the UK fintech industry, and it could be set to experience steady and consistent growth as consumers become more trusting of financial technology, and more dependent upon banking apps and cash flow management technology.

    With London having the highest concentration of financial and professional service firms in the world, it could be the case that the fintech revolution may start right here in the UK. If you're interested in learning more about one of our own fintech partners, check out Mettle, the business banking service by Natwest.

Mettle currently supports

  • UK-based companies with owners that are UK residents
  • Sole traders and limited companies (with up to two owners)
  • Balances up to £100k (up to £50k for sole traders)
  • And is compatible with iOS and Android devices

How could Esme help?

These are difficult times for many businesses, so it's important now more than ever to take good care of yourself and your team. If you're concerned about your business being impacted financially due to coronavirus, visit our FAQs page for information about how we may be able to support you.