1022. Insights: How small and medium-sized businesses win with embedded finance

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1:03Hello, and welcome to FinTech Insider Insights. I'm your host, Kate Moody. Today, we're exploring a major shift in the way SMBs run their banking, the move from simple digital channels to intelligent advisory. Now, let's take it back to basics and quickly define SMBs. Small and medium businesses, or SMBs as we often call them, are typically defined by their size. They have a limited number of employees and generate lower annual revenue compared to large corporations. So, the exact numbers can vary depending on the country and industry. These businesses often operate on a local or regional level and usually have simpler organizational structures, making more flexible and adaptable.

1:38Despite their smaller scale, SMBs play a crucial role in the economy all around the world, driving innovation, creating jobs and contributing significantly to economic growth. So what's going on? For years, banks competed on apps, dashboards and online portals. But that arms race is over. Slick apps are now table stakes. Everyone has them. SMBs don't just want to see their balances. They want guidance. They want insight. They want a digital CFO, a system that not only shows them where they are financially, but also tells them which route will save them time and money. Think of it like having a GPS for your business finances.

2:13The app isn't just showing where you are. It's telling you which route will save you time and crucially money. How accurate would you trust that GPS to be? In this episode, we'll first explore why digital first banking is no longer enough. And then in part two, we'll discuss how embedded finance is helping SMBs navigate their financial journey smarter and faster. Let's dive in, shall we? Firstly, we have someone who is very familiar with Plio and the work that they're doing in the embedded finance space. Kunal Gulav, VP of Plio Embedded. Welcome, Kunal. Could you tell us a bit more about your role at Plio, please?

2:46Yeah, thank you, Kate, and thank you for having us. I'm Kunal. I'm responsible for Plio's embedded finance business. At Plio, we have been serving SMBs for about 10 years now. We serve 40 ,000 customers across 16 European countries. And our mission is to make European businesses or SMBs thrive. Where we want to even further, our mission is to bring our spend management capabilities to where SMBs operate. So with banks, be it payment service providers, be it accounting providers and HR providers. So we want to bring our offering, working with our partners to European SMBs. And that's where Pre-Embedded comes in.

3:22Awesome. Well, thank you very much for taking the time to join us today. Really excited to hear your perspective as we go through today. Joining Canal, we have an exciting FinTech Insider debut for Simon Gilson-Fox, SVP of Small and Medium Enterprises at MasterCard for Europe. Massive welcome to the show, Simon. Would you mind telling us a bit more about your role at MasterCard, please? Thank you, Kate. Yeah. So in essence, I look after the products, the solutions, and the customers that take our products and solutions that cover all the small and medium businesses in Europe. So anyone that has a MasterCard for their small business sits under my responsibility to make sure they have the right product at the right time and we evolve with them through their business journey.

4:05Fantastic. Well, yeah, absolutely excited to get your perspective as well as we run through this. So thank you very much for taking the time to join us. So we have our panel. Let's dive in. In this part of the podcast, we're going to start by asking why now? Why are SMBs suddenly expecting more from their banks? for years, a clean app and the ability to make payments felt like the baseline, not necessarily because SMBs thought it was enough, but because it was often all their banks could provide. But that is changing. New technologies, smarter tools and more data-driven services are raising expectations, showing SMBs that banking can do more than just record transactions.

4:38It can actually help them plan and grow. That shift brings us to the way SMBs want to think about banking services like GPS. If your banking app only shows the route, you've already traveled, it's informative, but it's not particularly helpful. What SMBs really need is guidance that looks ahead. A system that says if you take this route, you will avoid cash flow issues next month, for example. Okay, Canal, maybe I'll come to you first. Why do you think this change has happened? Why are SMBs suddenly expecting more from their banks? Or is it as sudden as we've described? It's not sudden. It's been going on for a while, Kate.

5:11The parallel I would draw is consumer banking. Because if I go back to the definition we started in the podcast, small and medium businesses, they are ultimately using all the consumer tools out there. So in my day-to-day life, you know, I've got a slick banking app. I've got the best email system. Everything is easy for me. And when I just switch gears and eight o 'clock in the morning, I start running my business. I need to download something from a laptop. I can't do it on my mobile phone. I then need to sit down, call my accountant. I then need to figure out everything together by reconciling them in an Excel spreadsheet.

5:50And by the time I figured it out, my business stays over. So if I really want to succeed and really want to thrive in today's world, I need insight on my fingertips. I need what's happening as they're happening. I need advice at point of spin. And that is sort of how I can focus as a small business owner, focus on running my business, focus on actually doing what my core capability and competency is. and that's why it's not a sudden shift. It's been there for a while. I think it's becoming so relevant now that the pace of technology change or the access to technology within consumer and SME is just so different now.

6:29So that is why the moment is right now. Yeah, Simon, does that ring true of what you're seeing from the Mastercard side of things? Yeah, very much so. I think small and medium businesses have been underserved and we tend to follow in B2B payments, the consumer journey, if you like. Generally, the industry is probably three to five years behind but the pandemic speeded up the increased need for visibility of where I need to be as a small business in terms of what do I need to buy to keep going, how can I buy that stuff and how can I get paid for stuff and and and the proliferation of there's many terms but embedded finance embedded finance is a much misused term but basically where can I go as a consumer to shop and pay for stuff the small business expects the same but in the terms of how can I get paid quickly for stuff and where can I buy my things across that journey?

7:42But it plays to the need for immediacy, confirmation of payments arising, and banks and the SME ecosystems are waking up to that fact. So you see a proliferation of payments, services, cybersecurity being offered to small and medium businesses, but right the way through that small business ecosystem. Yeah, absolutely. Can I also you live and breathe SMBs on the daily basis? I mean, I'm sure there are still lots of misunderstandings about what day to day life looks like these businesses. Is there one myth about SMB finance that you wish you could just get rid of or correct for people? I think everybody assumes that if you have banking sorted for SMBs, it's done, the job is done.

8:32And I think just building on what just Simon said, it's more relevant that if you can fit things into the business workflows. So I'll take an example. I am a business with about 50 employees and I'm getting an invoice through which I need to make a payment. Yes, I can have the best payment solution. I can have the slickest banking app and I can click a button and the payment goes through. But before that, I need to have somebody to review the document, somebody to review the contract, somebody to make a decision whether that is needs to be approved by myself or the CEO, that needs to be approved and then the payment goes through.

9:10So even in a banking and a financial services context, if you have the best payment systems, the best payment rails, it's about how can you create an ecosystem where their workflows are embedded or it's all in one. So you get a payment, you read the invoice, you say, it needs to be categorized under this accounting code. Simon O 'Connell needs to approve it. Once it's done, the payment goes through. And that's where people oversimplify and think, you know, we have done the payments for it. We have got an amazing app. Now, why are they complaining? It doesn't solve a problem. The real need is that they can run their business quite quickly.

9:50And that is where, that's a myth in the industry. That it's not just about payments and financial services. is it's bringing payments and financial services into the business workforce, which is very, guess really important. Yeah. Simon, obviously you talked about a media see or people are able to do things instantly. When it comes to banking, today's climate, especially the pressures we've seen around inflation, your talent shortages, what are cash flow? Is speed the most important thing or are there other things which you think are also important for SMBs to kind of stay on top of their day-to-day business?

10:23I think speed is an aspect, but crucially to speed needs to be, I'll call it the visibility of the decision making. So it's fine to say that things will happen fast, but myself as a small business owner, I want to know that it's been done. now whether that's me applying for an overdraft a short-term credit facility or even a credit card I can go onto a system and I get an acknowledgement really quickly that it's been done but actually the crucial decision where I need to see speed is have I got that credit facility can I fund next month's cash flow and likewise in terms of the payments or receiving payments Again, people presume that things go quickly, but actually having that confirmation of payment, having that immediate notification on a system, on a banking product that my supplier has been paid to the agreed terms or even early, it's fairly essential.

11:31So it's more around the tools that give me visibility into the confirmation that something has happened at speed or been expedited. That's the crucial bit. as a small business owner. Yeah, no, for sure. And do you think in the past, these types of, that type of visibility, these types of journeys haven't been offered because just the underlying technology wasn't there to support them? Or do you think there just wasn't an understanding from providing the space about how crucial that kind of flow is or kind of why that's essential to SMBs? I think there's always been the understanding that the advancements of technology means different parts of a journey can integrate easily with each other.

12:14That's the crucial bit. And if you can flow from your banking app to your spend management app, to your card providers app in a seamless journey, you get visibility of the data that flows between those systems. And we all talk about the data and the flows of these systems. For a small business, it's, I know I've been paid. I know I can now take that money and pay for something, can transfer it to a different account. And I know I can send that money cross-border, however, make a card submission. It doesn't matter what it is, but then I know I can use that money to make a payment. So I think it's the improvements in the various aspects of the tools that small businesses need in terms of how they integrate and talk to each other.

13:01And that interoperability is absolutely crucial. You know, we held a small and medium business event a few weeks ago to showcase some of the troubles that we're having. And an incredibly large, small business is still doing their cash flow on a spreadsheet. The lady still sits there, and they're nearly a million pound turnover business. and she's still doing it on a spreadsheet because that's the tool she prefers and that's the tools that she likes.

13:35So it's the interoperability of the various systems that's got a lot better. Just to build on that, Kate, systems have been existing, right? So you've got the best accounting systems out there, you've got the best customer relationship management systems out there. But the reason people still keep going back to Excel is they're not connected. So if I'm a small business owner, I have to deal with four plus bank accounts, 10 plus software systems, and that entire ecosystem is really complex. And ultimately, in order to bring it all together, I still need to go back to an exam. And what Simon said is the simplest need, right?

14:13I need to get paid on time. I need to know when I've paid somebody, and I need to know visibility of whether I'll be positive or negative by the end of the month. And if you can bring it all together, in a single place, which is interoperability, having the data connectivity and having the insight so you can make every spend decision a smart decision, that's where you add value. So I think it's a bit about, the understanding has always been there. Technology has evolved on solving individual silos is probably a strong word, but individual parts of the problem. And now it's the chance and how can you actually bring it all together and stitch it?

14:52so you know the line I like to use is an SME saying treat me like you know me and that's the important part that's what you need to solve for yeah and I can completely set that kind of the connectivity being key I suppose I think what you described which I completely agree with is kind of the key components of just running the business day to day I suppose you have a part when I've interviewed small business owners or kind of the financial controllers within small businesses I think they kind of seem to split their world into kind of two big buckets of jobs right like the jobs to kind of keep the business running and then the jobs to think about kind of what's next for the business kind of like you know when is going to be the right time for the business to do something different to grow to shift to kind of move something onwards so that's I suppose where maybe the kind of advisory component starts to become particularly key as well so I've seen typically small businesses almost struggle because they can't afford to make that strategic hire for the person that will help think about those big strategic growth questions.

15:50Do you think kind of the emergence of AI automation canal could start to fill that gap, could replace some of these kind of human advisory chunks that SMBs need to grow? I think more than replace, I think it will enable them. So if you think about a small business and a medium business, a small business is, you know, the owner is wearing multiple hats, right? So if you can eliminate all the manual work that we have talked about, it actually gives them the mind space to think about how can they grow the business, which is equivalent to the strategic conversation you're talking about. If you look at a medium business, which has a finance team or a financial controller, typically finance teams, the job is keeping the lights on, which is maintaining the books and ensuring the books and records are correct, and also helping the business grow and make the strategic decisions.

16:40If you can make the first part seamless, automated, and give insights on a real-time basis on what's happening so something as simple as hey kate the finance controller do you know you've spent 15 more on your marketing spend over the last month as compared to the previous 12 months and by the way if i look at your peer group you're 10 above them on spending and that gives enables you as a finance person and empowers you to actually drive the strategic conversations of finance is not controlling the post-strings stopping the business from growing. It's actually enabling the business to thrive and be successful because they don't have to spend time on manual work.

17:22They've got the insights at this point of spend and they can actually help drive the business forward. So I don't think AI will replace them. I think AI will actually enable finance teams and small business owners to actually focus their mind space on the things that matter. Yeah. Simon, what do you think? I suppose we can, we've held off mentioning AI up this point right so what's your perspective on where AYA plays into this? I know you you you Karnal and I were speaking and you can't really go to any events or to be honest anything anywhere without mentioning the the wonderful two-letter acronym so I think it can only help but I think it has to be delivered by trusted bodies and partners and that's the crucial bit.

18:08We're developing, I'm literally testing one at the minute, something we're calling the CFO agent. So a CFO agent will look at your accounts, pick out the invoices that need paying, understand what it needs to do to help you manage your cashflow. So that's incredibly powerful, but that has to come from a trusted source because um as a small business owner you you need to feel one empowered but also trust ultimately what you're dealing with and and on the the small business panel i spoke about there was we had four customers there four small businesses very very diverse two would use it two wouldn't um in any in any way shape or form um so i think AI will and can help, but as a small business, you need to have absolute trust in where, what is the AI tool you're using, where it's coming from.

19:08Is it from your bank? Is it from Mastercard? Is it from Playo? Because that trust has to be inbuilt to that brand, that thing you're talking with that's helping you, one, sustain your lifestyle. But more importantly, you know, keep your small business running. And any entrepreneur, I'm a failed small business owner, but any entrepreneur I know that's successful kind of puts the life of that small business nearly, if they're fortunate enough to have kids, nearly above the importance of their children. And when you're going to give AI access to your funds, finance, payments, cards, tax returns, those type of things, you need absolute trust.

19:54So it will undoubtedly help, but it has to come from an extremely, extremely trusted source. Okay. I think that's a perfect place for us to take a very quick pause, but don't go anywhere as we'll be diving even deeper into this topic and what we think is going to happen next after the break. Hey folks, David Breer here, CEO of 11FS. Here's something you might not know about me. I get a lot of people trying to impersonate me online. Fake profiles, scam emails, the lot. And a big part of that comes from data brokers, hundreds of them quietly collecting and selling your personal information. Your phone number, email, home address, job title, all out there and all fueling identity theft, scam calls and spam.

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21:31Now we've explored a bit more about why SMBs need intelligent advisory. The next question is how do we deliver it seamlessly right where they are already working? This shift toward proactive guidance requires embedding intelligence into everyday workflows, as Kanala has explained very eruditely. Embedded finance does not just point SMBs in the right direction, but just like a GPS, it actively reroutes them in real time. It can flag upcoming cash flow traffic jams, suggest smart at spending detours, and highlight new routes to growth, all without them ever leaving the tools that they already use every day.

22:00So let's dive back in. One thing else we haven't necessarily talked about, a huge amount, is where banks sit in this picture, right? Obviously, Simon, you represent Mastercard, can I represent Plio? banks maybe in the past have had quite a transactional relationship. I think we've talked about this, maybe how in the past some of these businesses have been underserved. Kanael, what do you think the role is for the bank in the future for these types of businesses? I think having worked at a big bank before, I think banks play a really critical role. And if I take a step back, banks do two things really well.

22:36One is they're in the business of managing risk. and the second is they are in the business of providing capital. Where we actually see banks coming into this is a really strong partnership where we actually enable banks to help SMBs with advice on their business because banks have the knowledge, the skill set and the experience. You know, there are some banks out there which have been doing it for the last 200 years and they could definitely do it. and second is enable them to have insights in a partnership model where they know what SMBs are spending on, when they are spending on things and what do they actually need.

23:15In the old model, if I'm an SMB, I would have a relationship manager at a bank who would come to me and say, hey Kunal, how's it going? How's the business going? Let's talk about it. Imagine if the same person could come and say, hey Kunal, I see that you've grown 20 % of the last year. However, your marketing spend has gone up by 30%. Let's talk whether you need more capital or should we help you think through whether you're growing your business at the right place. So I think banks have a really crucial part to play in this ecosystem. It's more like, you know, how can we augment the capability with all the tools, the workflows, the capabilities and the technologies out there to create that ecosystem, which I like to call the win-win-win ecosystem to make SMBs thrive ultimately.

24:04Yeah. Simon, keen to get your perspective. Obviously, I think maybe in the past, this was a simpler ecosystem, right? There weren't quite as many players. The SMBs had parts of their financial life. Obviously, we've talked about accountancy platforms, you've got banks, obviously, you've got card providers, you've got accounting systems. This is a much more complex ecosystem now, right? How have you seen different banks react to that? obviously all banks are fantastic in Mastercard's world especially if they have our brand on their cards but where banks are realising is that we talked about small and medium enterprise businesses ecosystems those ecosystems are now offering banking applications which isn't as difficult as it once was you can go onto an online app it can give you a multi-currency bank account and a card as a small business within a matter of minutes so I think banks are the high street banks now are waking up have woken up right they've woken up over the past I'll say 10 years to the need to partner with the right players at the right time to satisfy their small business needs so whether it's a you know a digital vat submission tool or whether it's an accounting package tool a spend management tool but they can't do it all for everyone so they have to partner with the right ones at the right time because otherwise smbs just leave they just go elsewhere because other people have better user experiences that makes their life quicker they see their decisions and payments made quicker and they get better tools to help them run their small business.

26:00Anything from a simple budgeting tool to e-invoicing to a customer relationship management. But what the banks are getting very good at is bringing on the right partners at the right time to satisfy their customers, whether they're focusing in on certain segments, whether it's you know, a lot of focus on construction at the minute, a lot of focus on the space industry, would you believe, a lot of focus on the motor industry, but bringing in the right providers for their customer base at the right time is where it's changing at a pace, at real pace. Yeah, no, I think that's really key. And Canelo says, I'm keen to go back to something that Simon was talking about in the first half of the show, you know, some of the customers that he's spoken to recently, there's kind of been that 50-50 split between people that maybe were doing things quite manually still and people that maybe were more open to moving.

26:56So there obviously is like a bit of a, it's a bit of a turning point, right? There might be some businesses that are leaping straight into this new world where all of these smart tools that exist, they're happy to start to integrate, but there's going to be a large body of businesses that are more reluctant, that have concerns. What do you think the industry needs to do to help those more reluctant businesses to make that make that transition? I think it's really simple, Kate. It's to deliver value to those businesses. Because I think if you think about a small business, they are working really hard, toiling in day in and day out to make the business work.

27:32If you can deliver value to them and show value, the uptick would be higher. So some of the things that we see is, we see an NPS of 50, we see 70 % monthly active user rates and a 60 % increase in spend in the first 12 months. And that is because small businesses actually see value. You've got customers or small business finance teams and owners coming in. Oh my God, now I can actually think about what to do with the business next. Did you know that I've been called a champion by my executive team? You know, that's a finance person coming in telling us, right? Or, oh, I suddenly have time not to look at paperwork.

28:13I can actually plan a dinner with my wife on the first week of the month. And I think if you get these moments that matter, that they are actually seeing value, and that's what we need to do. I think as an industry, sometimes we focus on technology for technology's sake, that, you know, we do X, we do Y, and, you know, they will just uptake it because the technology makes sense on a slide. I think it's more about if we can deliver value that can reflect on a day-to-day basis and make people, I mean, it sounds a bit cheesy, but make people happy in their day to their lives, that's important and that's what drives uptick.