The rise of alternative SME lending platforms is shaking up the banking system. A third of small and medium enterprises (SMEs) are considering moving away from their traditional bank, according to data from Bain, due to lengthy, complicated and painful administration processes. Customers typically wait 10 to 30 days for a response to a credit application, when a fintech or newer bank may have the ability to make a decision in minutes. 

SMEs are the backbone of economies, contributing significantly to employment, innovation, and economic growth. SME banking provides an opportunity for banks to build long-term relationships with SMEs by filling a much-needed financing gap that comes with significant revenue potential.   

SMEs have high expectations from banks, yet many think traditional lenders are not hitting the mark. As a result, a number of alternative lending platforms have emerged to plug the gap.  

So how can banks compete with these new entrants and maintain their position in the market? One word: collaboration.  

What banks can learn from alternative lending platforms 

The global alternative lending market hit $566bn in 2022. And it is forecast to grow to $832bn by 2030, according to data from Vantage Market Research  

The alternative lending industry surged in the aftermath of the financial crisis. We see it with the likes of Funding Circle and LendingClub appearing, as traditional banks tightened their lending practices. At the same time, tech advancements meant these alternative lenders could operate more efficiently, offering faster loan approvals and more diverse products. 

We believe traditional banks can learn from alternative lenders to adapt their own processes. Borrowers are looking for quick lending decisions, streamlined processes, affordable and flexible solutions to suit their borrowing needs. They also expect to do their banking on a mobile app – including account management, payment processing and transaction tracking – to manage their finances easier. 

By collaborating with providers such as SAP Fioneer to leverage technology and data analytics, banks can automate manual tasks and speed up the loan process. And by using application programming interfaces (APIs), we can easily incorporate alternative data from a range of sources. Banks can then use this data to create different scoring models so they can make instant decisions on loan applications. This is essential for SMEs looking for quick certainty on how much they can borrow and when the funds will be in their account.  

Adopting a customer-centric approach  

Everybody expects institutions and organizations to offer easy customer journeys. Alternative lenders see this as their core competency, but traditional banks may still be encumbered by outdated technology that means they can’t give customers what they want – a transparent and fast process to suit their rapidly changing needs as a business. 

One tangible example of this is the fully digital onboarding process provided by digital-first SME lenders and fintechs. SMEs are able to open an account within minutes because there are central registries for automated data extraction, instead of manual data collection. Meanwhile the identification and verification of all directors can be done digitally, removing the need for in-person processes in-branch. This provides a better customer experience, while being more efficient for banks. 

The power of technology and innovation 

To match or surpass the capabilities of alternative lending platforms, traditional banks must embrace new technologies and innovative solutions. 

There have been huge advancements in machine learning over the past couple of years. Embracing automation will ensure banks remain competitive. It helps banks to automate and speed up processes such as loan application processing, document verification and compliance checks. This will allow banks to make speedier and more accurate lending decisions, and help identify potential fraud and make the entire process more convenient for the customer. 

Enhanced data analytics, offered by providers such as SAP Fioneer, also allows banks to gain deeper insights into their customers, by gathering alternative data on behavior, accounts, revenue and costs to assess their preferences and credit worthiness. This means banks are able to offer more tailored solutions to different subsets of customers. 

Working with real-time data is also beneficial for lenders. It gives a much more up-to-date view of an applicant’s cash flow situation rather than having to rely on outdated documents. This is especially beneficial where a company has limited assets and lenders are therefore making loan decisions based on the strength of a company’s balance sheet. 

Collaboration in action 

There is huge potential for partnerships between traditional banks and fintech companies, e-commerce marketplaces or alternative lending platforms.  

Embedded finance, where online marketplaces and platforms have the ability to provide loans with the help of a third-party fintech, is a huge growth area. These partnerships allow banks to expand their product offerings, create new sales channels, improve customer experience and increase their market reach. 

An example would be ING in Germany, which partnered with Amazon in 2020 to offer loans to sellers on Amazon’s sellers’ portal. The loans, a pre-approved offering by ING, allow sellers to borrow between €10,000 and €750,000 without them having to supply vast amounts of paperwork such as balance sheet statements. Amazon acts as a broker, presenting loan options on the lending page of its selling portal to eligible business owners selling goods through its website. 

The benefits are clear. SMEs have better access to funding to help them grow, while for ING it opens the door to new customers. For Amazon, their established sellers can use this fresh capital to buy new stock to reach more customers.

These opportunities are made possible by open technology which is built to connect via API with other applications.  

At SAP Fioneer, we recognize the value of an ecosystem, so our products are built with an OpenCore concept, and we provide our customers with access to thousands of prebuilt openAPI connections.

Banks should find a niche  

Traditional banks can differentiate themselves from alternative lending platforms in many ways. This could include focusing on niche markets, offering specialized products and services or providing value-added services. In recent years, a number of banks have emerged to cater for specialist groups.  

In the US, there are banks aimed at doctors such as BankMD, which offers loans specifically for opening new practices. Panacea provides refinancing designed specifically for medical, dental and veterinary school debt. There are even banks for musicians such as Nerve, which syncs with Spotify to show streaming and follower data and offers a networking feature to aid work discovery and artist collaboration.  

Traditional banks should consider how they can take a similarly innovative approach to SMEs or even a specific subset of businesses.  

Research shows customers are willing to pay up to 20% more for hyper-personalised financial products 

Striking a balance between compliance and risk management 

Banks clearly have to strike a balance between innovation and risk management when competing with alternative lending platforms. There are strong regulatory compliance and risk management practices operating in the financial services sector.  

Technology and collaboration can help banks tackle regulatory challenges, and technology providers will help you overcome any challenges. Our SME banking platform allows for enhanced in-app digital identification and verification. This allows for seamless and simple verification of identity through a customer’s mobile device. 

Preparing for the future 

Digital lending will continue to dominate demand in SME banking. Around 66% of SMEs want access to faster credit, according to recent data from EY, suggesting traditional lenders are struggling to keep pace with demand and with technological advancements. Meanwhile alternative lenders are rushing to fill the gap left by traditional banks.  

Banks have the chance to leverage their trusted brands. They can stay ahead of the competition by learning from alternative lenders. Automating and enhancing their digital capabilities should be a priority. Banks don’t necessarily need to overhaul their own infrastructure. Instead, working with fintechs such as SAP Fioneer will result in quick and agile solutions, meaning banks can launch product and digital offerings quickly. 


There are huge opportunities from SME lending. An increased focus on this sector will allow banks to tap into a fast-growing market. This way they can provide innovative solutions that can enhance their digital capabilities across the organization.  

SME customers expect from their banks the same simplicity and convenience along all they are doing across their business. The boldness and creativity that comes from using technology will give banks the opportunity to be more competitive and become leaders in their market. 

The quickest way traditional banks can compete with alternative lenders is by partnering with technology providers that are agile and can offer innovative software that has the customer journey at its heart. 

At SAP Fioneer, our innovative SME offering offers a modern and open ecosystem for SME clients. It utilizes AI-powered automation, self-service capabilities and digital end-to-end journeys.  

With SAP Fioneer, you are not just buying software. You are making a strategic investment in the future success of your bank. 


You might also be interested in our blog post: How to achieve sustainable growth in SME banking

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