The European Union (EU) is home to 24 million small and medium-sized enterprises (SMEs), representing about 99.8% of all companies and employing 93 million people that account for two-thirds of total employment.

Although SMEs make up a large part of the economy, they have traditionally faced many barriers to financing from traditional lending institutions. Additionally, SMEs have also become increasingly frustrated with what they perceive to be poor customer service through the continued deployment of legacy processes.

Tapping into unmet needs of SMEs, fintechs and neobanks/digital banks have emerged over the past years to offer more convenient and cheaper products and services that address a spectrum of targeted needs, ranging from cross-border and business-to-business (B2B) payments, SME lending, and working capital optimization, to cash flow management, know-your-customer (KYC), invoicing, and accounting.

SME neobanks in Europe

In the SME digital banking space, Europe leads the way, with more than 21 providers, followed by the Americas with eight players, and Asia with six, according to Medici Research.

In the UK, the main SME digital banking providers are Tide, which focuses solely on SMEs, and Starling, which has retail accounts as well. Tide provides business current accounts and smart financial admin services through a mobile-first platform, while Starling claims to have launched the UK’s first digital business bank account back in March 2018.

Other UK startups such as Coconut, Anna and CountingUp target freelancers, self-employed people and small businesses.

In France, the top player is Qonto, a neobank for freelancers and SMEs that offers a professional current account, payment cards and features that aim to make banking and accounting easier for companies. Meanwhile French startup Shine focuses on micro-businesses.

In Germany, there’s Penta, a SME banking provider acquired by Finleap in April 2019, in Norway, Aprila, and in Finland, Holvi, the official banking partner of Estonia’s e-Residency program.

Other fintechs that offer both personal and business banking accounts in Europe include Revolut, Monese and Monzo.

All-in-one business finance platform

All these startups allow customers to open accounts in a just a few minutes and integrate with popular accounting and payments software such as Xero and iZettle. Most also offer, or plan to offer, additional services such as foreign exchange, loans, insurance and help with tax, provided by third parties.

Part of their strategy consists in making their apps the one-stop-shop for all of a company’s banking and admin needs, and for that, they have begun rolling out new features and collaborating with other providers.

In May, UK startup Coconut launched a portal for accountants. Tide is planning to introduce a payroll service later this year, and also wants to offer new customers the option to incorporate their business at the same time as opening a Tide account, according to a report by Sifted.

Qonto has integration with Apple and Android Pay in the pipeline, and Starling is build up a marketplace that would feature a wide range of third-party financial services and software, including treasury services and human resources.

Growing fast

European business banking startups are growing fast. Tide claims 110,000 customers and a 12% share of new account openings in the SME market. It recently won a £60 million grant from RBS as part of a government-ordered scheme meant to spur competition in the banking market.

Meanwhile, Starling says it has 66,000 business and sole trade account customers, and has set a goal of attracting over 450,000 customers by the end of 2023. Like Tide, Starling has been rewarded £100 million from the same government grant.

France’s Qonto counts 40,000 business customers, and expanded earlier this year into the three largest economies in the Eurozone: Germany, Spain and Italy.

Finnish startup Holvi, which was bought by Spanish bank BBVA in 2016, serves 150,000 micro-businesses in Germany, Austria and Finland. The company plans to launch in Ireland, Italy, Belgium, France and the Netherlands.

Featured image credit: pixabay