Are Specialised Digital Banks the Future for SMEs?

December 2024

Fintech & Payments

Daniel Bedford

Senior Research Analyst

Small and medium-sized enterprises (SMEs) are increasingly looking towards streamlining their operations with digital solutions, and this is especially true with access financial and banking services. Historically, SMEs have lacked access to the same elaborate financial tools that larger businesses use. For example, being a start-up can limit access to lending, or financial, or employee management tools, and now digital-only banks have found an untapped market.

At Juniper Research, we have seen that the rise of digital-only banks tailored to the SME market has been a noticeable trend for the past few years, but who will come out on top? Will this market remain abundant with niche challenger banks?

Why are SMEs Embracing Digital-only Banking?

• Value-added Services: Digital-only banks can provide SMEs with embedded finance offerings in bundles that include financial management, data analytics tools, and more. These packages allow enterprises to streamline their operations and expand their product portfolio to better serve their customer base.
• Seamless Integration: SMEs typically use eCommerce, payments and business solutions that are readily integrated with digital banking platforms. Therefore, switching to digital-only banking can help eliminate the need to switch between multiple platforms. For SMEs that depend on eCommerce payment platforms and cloud-based accounting solutions, these tools are now readily embedded into banking platforms which ensures businesses with streamline efficiency and security. 

Source: Juniper Research

Specialised Digital-only Banks Drive Accessibility

Digital-only banks that specifically tailor their services to SMEs are becoming increasingly common, with this niche becoming more specialised in some cases. For example, Mercury are a digital-only bank offering business banking services specifically tailored for start-ups, offering bespoke services for capital loans and venture debt financing to help enterprises grow rapidly. Further specialisations in digital-only banking include tapping into niche groups, including GoWomen who offer financial services for Women of Colour, and Sibstar who focus on people with disabilities.

When Specialisation Leads to Extinction

Offering bespoke financial services can help digital banks drive financial inclusion, tap into underserved markets, and build a loyal customer base. However, serving a niche market can lead to greater risk of failure, as finite customer bases leaves the bank vulnerable to market changes.

One example is neobank Muvin, which offered a mobile app including digital wallets and prepaid cards for teens, who shut down in February 2024. This was driven by the Royal Bank of India (RBI) directive forcing Prepaid Payment Instruments’ (PPI) issuers to discontinue their Unified Payments Interface (UPI) services if they did not hold a licence. Muvin was left having to shut down its operations. Meanwhile its competitors, which included FamPay, shifted to becoming fully-fledged unspecialised digital-only banks, allowing FamPay to keep operating for its teen customer base. 

The key note here is that specialised digital-only banks can have prosperous futures, however they need to be able to effectively meet the needs of their niche userbase while remaining agile to market changes that could lead them in a vulnerable position.

SME Banking Requires Tailored Solutions

The next years in this market will be about transformation and building financial services that readily integrate with the lives of SMEs. The SME market is not a one-size-fits-all, and different enterprises require bespoke products and services. Fundamentally, businesses require accessible, efficient, and value-driven banking experiences. The digital-only banks who adapt quickly, without confining themselves to one niche, will be best positioned to thrive in the SME banking space.

Find out who the Future Leaders in Digital-only banking are from our recent blog and complementary whitepaper.  The Fintech Future Leaders 100 is Juniper Research’s new report identifying the most disruptive and exciting fintech start-ups across emerging payments, green fintech, regtech, and more!

As a member of Juniper Research’s Fintech & Payments team, Dan analyses developments in financial and payments markets, and how these interplay with emerging technologies, such as blockchain and AI. His recent reports include Future Leaders 100: Fintech 2025, KYC/KYB Systems, and Core Banking Systems.