While the European tech industry loses $400billion market value according to VC firm Atomico report, the SME sector still remains an attractive, underserved market. Despite the entry of multiple new challenger banks, or neobanks, many entrepreneurs report that they feel left out by tick-box lending criteria, which fail to take growth potential into account.
SME Bank is a neobank for businesses leveraging a single digital platform for all small- and medium-sized businesses’ finance and daily banking needs. Founded in 2021 in Vilnius, Lithuania, and already operating in five European countries, it is a flexible, fast, digital bank for business.
Nemira Palaimienė joined SME Bank with more than 20 years of experience working in the banking sector to build and launch the neo bank in the midst of the global pandemic as a member on the board of directors. In less than a year of her arrival, she, managed to create scoring systems, integrations of bank accountancy, monitoring system and other features.
So what did the lending space look like in 2022? More than a quarter of SMEs in the UK have had trouble accessing finance from their bank, while 35 per cent are getting no other service or support beyond lending. But SME Bank believes it is entirely possible to make good profits in SME banking.
New McKinsey benchmarking shows that the top-performing banks achieve 30+ per cent higher revenues per SME customer than average banks, driven both by higher lending and cross-sell revenues.
A big part of the problem is that many SME neobanks have never worked out what they were offering. A recent Finalta survey of 50 SME banks showed that few have yet developed a robust digital value proposition. This sounds extraordinary, but it’s not unusual in the maturation of any new market opportunity.
Speaking to The Fintech Times, Palaimienė explains how SME Bank’s service is looking to fill this gap in the market.
Tell us more about your company and its offering
SME Bank is the first Lithuanian neobank, focusing on small- and medium-sized enterprises (SMEs, hence the name), providing day-to-day digital banking services and also lending products. Founded in 2021 in Vilnius, Lithuania, we are already present in five European countries – Lithuania, Latvia, Estonia, Finland, and Germany with plans for further expansion for the next year.
Within only 12 months of launching, the bank attracted 400 customers from all over the Baltic states and grew its loan portfolio to €61 million. This has been boosted by the fact that SME Bank was internationally founded to be flexible, fast, and digital – in other words, a business bank that stands out from other business banking players.
Actually, SME Bank is the only neobank in the Baltics which offers such a scope of business-focused banking products: 100 per cent online account opening, international and SEPA payments, payment collection account-to-account with access to 300+ million users in Europe, revenue-based financing, deposits and other fast financing solutions. Having experience working in different markets helps us to always be at the forefront of developing new and better technology for SMEs.
SME Bank is licensed and regulated by the European Central Bank (ECB).
What problem was your company set up to solve?
SME Bank was established in order to fill the lending gap for SME companies and to provide the main financing services for them within a single platform. Small and medium enterprises represent over 90 per cent of companies in Lithuania, a similar number across Europe.
For instance, in the UK, more than a quarter of SMEs have had trouble accessing finance from their bank. Meanwhile, 35 per cent are getting no other service or support beyond lending. As a result, many SMEs remain under-financed, under-advised and at risk of serious business challenges.
That’s where we saw potential and strove to provide growth and development opportunities for each SME business. Irrespective of the industry, geographical location, or yearly turnover. Our motto is to simplify financing to SMEs by creating a single digital platform for all financing services.
Since launch, how has your company evolved?
From the beginning of operations, the bank attracted 400 customers from all over the Baltic states as well as Finland and Germany and grew a €61million portfolio. It has an additional guarantee agreement with local financial institution INVEGA and the European Investment Fund for up to €100million.
Today, together with the ecosystem partner SME Finance, SME Bank manages a €300million funding portfolio in a single ecosystem. Our banking services are now available in five European countries. In just its first year of operations, SME Bank showed a tremendous average of 34 per cent MoM revenue growth.
What has been the biggest challenge or most ‘tricky moment’ to overcome?
At the beginning, SME Bank was the only neobank in Lithuania. Of course, there were already a number of fintech startups, but no neobanks. So, we faced plenty of challenges, one of them was explaining to potential customers what a neobank is in the first place.
On the other hand, we faced the challenges that most banks face; the main challenge for SME Bank was to choose the best fitting banking system. We had set ourselves high expectations as the first neobank and we managed to set up all the necessary tools in a relatively short time. Thus, we built a bank in six months, after a year we were licensed by the European Central Bank, and at the moment we are generating profit.
What are your biggest achievements or ‘proudest moment’ so far?
We managed to create a fully capable bank in only six months. Building a company from scratch, we managed to adapt Single Euro Payments Area (SEPA) payments very quickly, enabling SMEs to make cashless euro payments to anywhere in the European Union as well as a number of non-EU countries, in a fast and efficient way.
We also collected the portfolio of our first customers in a very short period, proving the services we are providing are in high demand for SMEs, as well as illustrating the trust from all our stakeholders (customers, business partners and regulators). Also, SME Bank became profitable very fast. Despite the ongoing challenges in the market we are managing to scale up.
How would you describe the culture of your company?
Being at the forefront of implementing changes, having flexibility and a startup-like mindset helps us attract the brightest minds in the industry. This is in addition to employees from traditional corporate banks. We managed to preserve the spirit and quick pace of a startup with talented, motivated people we have on our team, at the same time combining it with a structure-focused approach that professionals with corporate backgrounds are bringing to our team.
We are eager to scale and always offer the newest solutions which makes us attractive to new talents as well as the existing team.
What’s in store for the future?
Our aim is to not only grow revenue from the interest, but also from scaling up our daily banking services. We would like to offer more services via partners and more embedded finance solutions as SME Bank’s tailored services can be aimed at solving a particular company’s goals.
SME Bank provides a full range of services and support tailored to SME customers’ needs and customisable by them via digital channels. We believe this is what the future needs. We also would use the tech necessary to get deep enough under the skin of what an SME is actually doing to make a reliable risk assessment without running up costs that make a loan unattractive for both parties. Also, the high level of automation will enable us to price services at levels that are attractive to smaller business owners.