Jessica Alfaro, a Financial Sector Specialist at the SME Finance Forum, was the introductory speaker on the Corporate and Commercial panel at the Accenture Fintech Forum “What is Really Working” on May 13. This event was part of the FinTechStage Festival 2019 taking place over five days in Milan, Italy. Alfaro was joined on the panel by speakers from Accenture Italy, Kyriba and October. She spoke about innovations and best practices in the space of corporate and commercial credit, specifically in terms of the digitalization of SME finance and the growth of the alternative lending market.

The SME finance gap is both a supply and a demand problem, and the credit crisis has made access to credit event tighter. Estimates indicate that for formal microenterprises, small and medium enterprises, the finance gap exceeds $4.5 trillion. 

But there’s been a shift as more and more money transactions that used to be in cash, are being made digitally. 

Alfaro said, “Payments have gone from cash to digital and the idea that lending to SMEs is high risk or too expensive has been flipped on its head.  Previously lenders needed to lend to learn, utilizing historical information. With so much data available, lenders can get the information they need by taking advantage of these new electronic data streams to make more predictive lending. This transforms lending to the SME segment from a problem to an opportunity for banks.”

This digitalization of payments has also brought a number of new parties into the credit market. These technology-focused MSME lenders are putting customer needs, big data, and advanced analytics at the center of their business models and are able to disaggregate or unbundle the banking value chain and offer more agile financing solutions to small businesses. If a small business is considering a long-form bank application that requires a lot of documentation and a multi-day/multi-week decision timeframe or a streamlined process from fintechs with a quick turnaround, many MSME owners will choose the latter.

“In a short time, these innovators have dispelled the long-held notion that lending to MSMEs cannot be achieved in a scalable, efficient, and profitable manner. Fintechs have demystified the idea that it is hard to lend to MSMEs, pushing banks to do the same,” said Alfaro. “Beyond looking at fintechs as disruptors in the financial services market, we also need consider the new role of big tech, ecommerce and consumer goods firms, as they move into the financial services industry. These giants may not be interested in collaborating with banks, as many fintechs have done, a topic we’ll be discussing more at the Global SME Finance Forum 2019 this October in Amsterdam.”