The future of financing: finding the sweet spot between price, speed, and satisfaction

The financing landscape is evolving rapidly and we have witnessed a transformation of the whole finance and banking sector over the last decade, driven by fintech startup companies that challenge traditional financing and banking models, incorporating more useful functionalities—beyond online payment processing, instant financing decisions, and embedded solutions—into their offerings, to widen financial services.

While B2C consumers already enjoy plenty of the advantages created and offered by fintech companies, it’s time to offer technologies to businesses and cover their needs as well. Nowadays, small and medium-sized enterprises (SMEs) seeking flexible and accessible financing solutions are at the center of this transformation.

Historically, SMEs have been underbanked due to the perceived higher risk they carry and a lack of collateral or a proven track record. Of course, there are more options for SMEs to seek financing, like credit unions, but they are not as flexible or affordable and often don’t offer the best customer experience. In recent times, fintechs have stepped in to fill this gap. Fintech companies are constantly revolutionizing the financial services industry by leveraging technology, creating innovative solutions, and making financing services faster, more accessible, and more tailored to the specific needs of businesses. However, speed and better experience come with higher costs. So, what matters most to businesses seeking financing: price, speed, or seamless customer experience?

A recent global EY survey of 6,000 SMEs shows the growth in seeking alternative financial service providers, with 31% of SMEs indicating they would consider a fintech provider and 26% a big tech provider as a source of financial means. But what are the most important factors for SME’s owners considering additional financing? 

The triangle of three—fast, cheap, and great customer experiences—doesn’t exist. Usually, fintech companies offering quick decision-making or seamless customer experience can’t compete in pricing, and vice versa. When seeking financing, SMEs must navigate a delicate balancing act between three critical factors:

Price. The financing cost remains a crucial factor for SMEs, especially in today's inflationary environment. Seeking funding, particularly for very small businesses, entails very high interest rates. While traditional banks may offer lower prices, their application processes are complex and entail long decision-making times, sometimes exceeding 30 business days. However, fintech companies face higher borrowing costs, making it challenging for them to provide competitive pricing. On the other hand, alternative lenders leverage advanced technology such as AI and machine learning to make instant decisions and offer a broader range of financing, albeit at higher prices. This flexibility and transparency are invaluable for businesses prioritizing agility, speed, and accessibility.

Speed. In this fast-changing business and economic landscape, speed is everything. The ability to make quick decisions based on cash flow can significantly impact strategic growth, especially for SMEs operating in highly competitive environments where even a single day can make a difference. Traditional banks often struggle to match the pace required for financing decisions with the complex decision-making process. On the other hand, fintech alternative lenders offer agility and implemented technologies like AI-credit scoring, (and beyond credit scoring fintechs often analyze a broader dataset) which enables them to make instant decisions without asking for loads of documents and a proven track record. There are a lot of niche alternative players who work only with one particular financing service and with a specific business sector so they know the market and offer more tailored solutions. This solution is useful for SME owners who already did their homework and know which particular financial instrument is best for their business needs.

Customer experience. Recent research and surveys highlight a growing emphasis on seamless customer experience. The Temkin Group finding reveals that companies earning $1 billion annually can expect to generate an additional $700 million within three years of investing in customer experience. In fact, 86% of buyers are willing to pay a premium for exceptional customer service. Additionally, research from PWC indicates that consumers are willing to pay more for higher-quality items. There is a noticeable shift in business strategies, with an increasing focus on the speed and quality of service over cost when selecting a financing partner. Fintech solutions shine here, leveraging technology to streamline the application process, minimize documentation requirements, and provide more personalized interactions. Findings confirm consumers have embraced digital channels, opting for a mix of direct communication and online access. Most say that, over the past three years, they’ve started a loan application (63%), executed an investment decision (69%), or bought or renewed car insurance online (58%). According to McKinsey research,  70% of banking executives view embedded finance as either core or complementary to their business strategy, yet only 20% currently offer embedded finance solutions.

SME financing is a complex landscape, with no single solution fitting all. There's no universal or definitive answer for determining which factor is most crucial for SMEs. Businesses must prioritize their unique needs and stage of development when selecting financing options. Some may prioritize lower interest rates, even if it means navigating a more complex and longer process, while others may prioritize speed, even at a higher cost. Startups and smaller SMEs might value personalized support and financing availability, even with slightly higher costs.

Although SMEs still face challenges in accessing suitable financing, lenders now have unprecedented access to real-time data, enabling them to enhance their services. However, no entity can offer all three components of the financing triangle: price, speed, and seamless customer experience. Fintech addresses problems when a quick solution is needed. Typically, this means they focus on only two areas: customer experience and speed, leaving price as secondary. However, if the customer can wait, then they can opt for a cheaper financing source. The aspect most important to you depends on your business maturity, model, and overall financial health. But as technology continues to improve and evolve, rapidly growing customer expectations blur the distinction between alternative lenders and traditional banking models, especially with the rise of neobanking, because they can provide even cheaper financing combined with the speed and ease of a fintech.