Small Business Financial Services Alternatives to Institutional Banks

. 4 min read

Newly-minted entrepreneurs just starting a small business and accomplished business owners who have built successful companies experience many common challenges. Case in point – though traditional banks offer a broad spectrum of business services, they aren’t always as accessible or affordable as entrepreneurs need them to be.

Cash flow – regardless of currency – is the lifeblood of any company. Unfortunately, there are many circumstances which can slow the inbound flow of money, while a business still has financial obligations to meet, including:

  • Payroll
  • Accounts payable
  • Recurring operational costs like utilities, maintenance fees and property leases
  • Capital costs like buildings, equipment and vehicles
  • Unexpected expenses like equipment repairs, legal fees and settlement costs

When these obligations need to be met, banks aren’t always prepared to take on the risks associated with new business loans. Or their interest rates, service charges and other fees can be hard to justify even for established companies. In some cases, it’s simply a matter of finding the right bank which is willing to support high-growth businesses without charging untenable interest rates.

Disruptive Financial Services for Business

Business disruptors like Uber, Airbnb and Netflix get a lot of the headlines as breaking their respective industry norms. Yet the digital era has introduced innovative services for business like:

  • Crowdfunding
  • Branchless business banking
  • Digital cross-border money transfer services
  • Credit and debit card processing services through tablets and smartphones
  • Invoice factoring
  • Online marketplaces for business financial services
  • Software as a Services (SaaS) applications for e-commerce, accounting, HR and data analytics

Just as Blockbuster’s fate was determined by Netflix and ridesharing is shaking up the taxi industry, the financial services industry is seeing unprecedented competition from niche digital players who specialize in the services listed above. Nimble fintech-driven companies don’t have the overhead of managing retail bank branches and legacy systems.

Many banks are disrupting their own business processes, and offering services like branchless banking and AI wealth advisor bots to compete with new market entrants.

The Rapid Pace of Disruption

A 2016 study by PWC Global FinTech survey found that up to 28% of the banking and payments market share held by institutional banks was at risk of being lost to fintech service providers. The survey showed an additional 22% of insurance, asset and wealth management business was also at risk. Competition in the financial services sector has spurred traditional banks to make strategic acquisitions to help them better serve business and consumers, yet the speed to market and ability to change is challenging in an industry as regulated as financial services can be daunting, which often drives fintech acquisitions by institutional banks like JP Morgan Chase, TD Bank and Credit Suisse.

A 2018 Executive Survey by New Vantage Partners found that nearly 80% of top executives at financial services organizations were concerned their company could be disrupted and replaced by agile, data-driven competitors such as digital payment service providers and companies building blockchain platforms. That is a significant jump from just under 47% last year. Bank executives are concerned they aren’t agile enough, they don’t have the data science depth, and they are frequent targets of cyber security threats and data privacy vulnerabilities.

Public-Private Partnerships in Small Business Financing

In 2017, there were 4.7 million small and medium-sized enterprises in the UK, which represents 99% of all businesses. In Canada, 98.2 businesses have under 100 employees, and 99.8% of European businesses fall into the SME category of under 250 employees. There are nearly 28 million small businesses in the United States.

Government agencies and banks both have specialized bridge and long-term financing services for small businesses, though the chasm where their services don’t meet the needs of entrepreneurs is best addressed by Public-Private Partnerships.  

Though banks serve as many of these businesses as their risk tolerance, business capacity and pricing models allow, crown corporations and government agencies need to partner with private financial services providers Funding Options in the UK and the Netherlands, Lending Loop in Canada, and Funding Circle in the United States.  

International Money Transfer as Business Accelerator

For small manufacturers which purchase parts from overseas suppliers, or mid-sized retailers or drop-shippers which source inventory from foreign manufacturers, electronic funds transfer offers a secure, reliable method of payment for buyers and sellers. Small businesses can lock into forward contracts at an exchange rate for up to twelve months and avoid the added costs of fluctuating currency valuation.

Small businesses buying for resale or production can avoid the high fees banks charge for currency exchange and cross-border wire transfers. This will enable them to be more price-competitive without eroding their profit margins.

Is your small business looking for innovative ways to send and receive money, be it across the country or around the world?

Open an XE Money Transfer business account today. Save your business time and money as you conduct business in the global marketplace.  


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