Mind the gap: Why software platforms are outpacing banks in serving SMBs

Software platforms have a significant opportunity to outcompete banks in serving the financial needs of small and medium-sized businesses, suggests new Airwallex research.

Almost three-quarters (72%) of global small and medium-sized businesses (SMBs) surveyed for a new report launched by Airwallex in partnership with consultancy firm Edgar, Dunn & Company, believe traditional banks are least likely to meet their financial requirements effectively. 

Meanwhile, the report shows 64% of respondents think software platforms and marketplaces with integrated financial services are better equipped than banks to serve their financial needs. Further, 67% think fintech platforms can serve their financial needs more successfully than banks. 

This finding indicates a gap in the market as SMBs look for more tailored, convenient and integrated financial services beyond what most banks provide today. Vertically-focused software platforms are increasingly well-positioned to address this unmet demand. SMBs want more from financial services.

The research highlights several pain points SMBs experience with traditional banks:

• Slow, costly cross-border payments and transfers

• Limited payment options for international customers 

• Difficulties managing multiple currencies across regions

• Lack of automation in reconciling payments

• Generic rather than industry-specific products

Many SMBs feel banks take a one-size-fits-all approach and lack expertise in their particular verticals. But their needs are often nuanced and specific to their industry. Agile fintech solutions appeal more than rigid bank offerings. The research shows SMB eagerness for embedded payments, foreign exchange (FX), cards and accounts within platform interfaces. 

How, though, is a vertical-focussed software platform going to better serve their SMB clients than a bank? As an example, a software company that serves businesses in the construction industry will have a rich understanding of the financial pain points their customers experience. Those platforms can offer their customers access to high credit limits and cashback on card payments, providing a simple and cost effective solution for vendor payments. They could also offer fast payouts to overseas suppliers and foreign exchange services that help their customers hedge against the risk of currency volatility.

To gain greater understanding of the opportunities around embedded finance, check out the nine use cases listed in this Airwallex article, published earlier this year. 

Appetite for embedded finance

The research reveals extensive appetite among SMBs for embedded financial services accessed through software platforms. 

Some 83% of SMBs want to access  financial services through their everyday software platforms and marketplaces. Yet only 9% currently access those services via their existing providers, indicating an underserved market.

Drilling down, SMBs are most interested in platforms providing:

• Foreign exchange services – 82% likely to use

• Payment processing – 80% likely to adopt

• Multi-currency accounts – 80% likely to use 

• Business cards – 76% likely to adopt

With traditional banks falling short, platforms embedding targeted financial solutions can boost stickiness and customer lifetime value. There is a triple benefit to providing these services to SMBs. Embedded finance can reduce customer acquisition cost (CAC), improve user retention, and significantly increase the lifetime value (LTV) of their users.  

Embedded financial services have also been shown to have a positive impact on the valuation or market cap of companies. Marketplaces that offer embedded financial services have a median valuation of 6.7x revenue, versus just 5.3x for those that don’t, Dealroom research indicates.

Software platforms edging ahead

With innovation in open banking and application programming interfaces (APIs), software platforms can integrate financial services creatively. Several factors give platforms an edge over banks. These include:

Vertical expertise

Niche software companies deeply understand – and have often shaped – their sectors. So they can design uniquely suitable financial tools.

Data insights

Platforms use customer data to personalise and recommend appropriate financial products.

Convenience and familiarity

SMBs value financial services within everyday software interfaces they know and trust.

Specialisation

Platforms can take a modular approach, plugging in targeted financial solutions as needed.

Speed 

APIs accelerate the integration of pre-built financial products, meaning software platforms can launch products much faster than if they were to build from scratch. 

This ability for platforms to deliver integrated, convenient and tailored financial services explains why SMBs see them outpacing traditional banks.

Overcoming barriers

Historically, some platforms were deterred from moving into financial services by regulatory hurdles and integration complexity. 

However, the emergence of Banking-as-a-Service (BaaS) and APIs now provides faster, more cost-efficient options for platforms to embed financial capabilities. Partnering with fintech enablers allows platforms to leverage pre-configured financial products. These can be natively integrated through APIs in just months, reducing upfront costs and speed to market.

This new accessibility to proven financial solutions means platforms can tap into the extensive demand from SMBs much more quickly and with lower risk.

Differentiation opportunity

In crowded software platform markets, embedded financial services present a real differentiation opportunity. SMBs demonstrate a clear preference for managing financial workflows directly through software interfaces. Platforms that ignore this risk losing customers to competitors that do offer embedded financial tools.

Forward-thinking platforms should ask: how could payments, lending, or cross-border transfer products help my SMB users?

Today's SMBs want insight-driven, vertical-focused financial products accessible where they already manage business operations. As banks lag in meeting this need, the door is open for agile software platforms to lead the way.

The research confirms that platforms plugging financial services gaps left by banks can gain a competitive advantage. The findings make clear that SMBs desire this integrated experience. The winners will be those who act quickly to serve the growing SMB demand for more integrated and vertical-specific financial services.