Tuesday, May 21, 2024


Fintech Can Incite Growth for the Entire SME Segment. Small to medium-sized companies stand to benefit enormously from the latest fintech technologies, that can assist with everything from automation to analysis. It’s the kind of digitalisation that not only offers companies an easy overview, but provides them with new ways to run their business and, ultimately, gain a competitive edge.

Here’s a scenario: a business has a revenue that steadily increases by 20 percent a year, while their profits do not increase at all.

This is the financial reality of a mechanic who also happens to be a customer at the fintech startup Crediwire. Together, they tried to find an explanation, using Crediwire’s software to analyse and structure the accounting data. And to answer a more important question still: what changes could be made to ensure that the bottom line increased along with the revenue?

We were able to see that, as the revenue increased, so had all the fixed costs. Our mechanic hired more and more people, but they were only just able to earn their keep. Of course, it’s great to give people jobs, but the company’s profits weren’t increasing in the slightest,
Nicholas Meilstrup, CEO and co-founder of Crediwire.

The insight enabled the mechanic to purposefully seek out a solution. He trained his employees to up-sell whilst customers were already in the shop and, only one year after implementing these changes, his bottom line increased by 50 percent.

For Crediwire’s customers, such leaps aren’t unusual. With software that analyses customers accounting data in real time, accounts are not merely figures that are glanced at once a year when the annual accounts are due, but a tool that customers can actively use to optimise their business on a day-to-day basis.

“It’s often the simplest things you miss, if you don’t have an overview. With automatically available insights that you can access digitally, we give small to medium-sized companies the superpowers they need to do business better,” says Meilstrup.

The untapped potential of SMEs

The fintech sector was initially perceived as one that would challenge and change the banking experience for individual consumers. However, in recent years, the focus has increasingly shifted towards financial services for companies—to such an extent that, in 2020, more money was invested in B2B fintech companies than consumer-oriented ones, according to figures from Dealroom.

Such a shift did not go unnoticed at the organisation Copenhagen Fintech, who have also been particularly observant of the untapped potential in small to medium-sized companies (SMEs). The organisation’s latest project, ‘SME:fintech’, will investigate how fintech solutions can support the growth of SMEs in Denmark. The project is supported by The Danish Industry Foundation (Industriens Fond) and The Confederation of Danish Industry (Dansk Industri).

“We can see that SMEs really want to digitalise, but they don’t know which solutions or what kind of data they need. It’s often the new technology itself that is in focus, rather than what it can do for the SME in question. What SMEs ought to be asking is how can they, for example, increase sales or minimise administration, and then we can find the relevant technology for that,” says Malene Jordt Andersen, project manager for SME:fintech.

In Jordt Andersen’s experience as a consultant for SMEs, she has seen that data collection is a particularly important first step towards digitalisation.

“Fintech solutions are a good place for SMEs who are interested in digitalisation to start. They are easy and cheap to use and can quickly generate value by reducing administration time or providing increased insight into the company and its customers—and those are just two of many examples,” she says.

Copenhagen Fintech has already seen how fintech can help small companies—such as the example with Crediwire—and the intention with ‘SME:fintech’ is to map out all the fintech solutions available to small to medium-sized companies.The project will also conduct several pilot studies with SMEs in various industries in order to test how easy it is for SMEs to get started and how much they actually benefit from fintech solutions such as Crediwire, Valified and November First.

“There’s no doubt that fintech companies are developing products that could really help SMEs. What we need to figure out is how they can reach the SMEs that need them most and, vice-versa, how we can encourage SMEs to take advantage of fintech technologies in order to increase their competitive advantage. If we can bring the two together, it could be a real win-win for both parties,” Jordt Andersen concludes.

The cherry on top

Digital accounting software has been the norm for many SMEs for a while, which means that the newer fintech solutions already have some data to work with. That’s exactly what fintech startups like Crediwire do: by integrating with the existing accounting software, they are able to analyse the data and translate it into a real-time overview of insights and what can be acted on immediately.

Figures from the startup show that, whilst companies normally spend 10 – 20 hours getting an overview of their finances, a digital accounting program with Crediwire on top can generate such an overview instantly.

“It can take a long time to put together a financial overview in companies, so it makes sense that people don’t do it very often. But really, accounting should be something you do for your own sake, to get a better understanding of your business. Then of course you can also report your results to the bank and the tax authorities afterwards. Unfortunately, accounting and financial reporting is so complicated today that most people only do it once a year when the accountant tells them they have to,” says Meilstrup.

A technological melting pot

Ageras is another example of a fintech company that has, from the start, focussed on building solutions for smaller companies. In 2012, when they launched their initial matchmaking service for companies and accountants, they could see from the inside how much untapped potential there was in the market. Not just for SMEs hoping to gain a competitive advantage, but for their own enterprise. Today, Ageras employs several hundred people and recently received an investment of 450 million DKK, bringing their total valuation to 1.5 billion DKK.

Back in the day, you needed a bank and an accountant to do business. That’s no longer the case. Alternative financing can be used instead of banks, whilst accounting software can do most, if not all, of what an accountant used to do. It’s a technological melting pot, where various accounting, financing and consulting solutions work together. Not only do they get the job done, they also add value, through data-driven insights and better terms and market access for companies,
Martin Hegelund, CMO and Co-founder of Ageras.

Ageras Group currently consists of the accountant marketplace Ageras, the accounting programs Billy, Meneto and Tellow and most recently, Salary. What these tools have in common is automation and reduction of the administrative work that SMEs normally have to undertake, whilst also providing companies with better insight into their own finances.

“You don’t see many people starting companies because they love accounting, reporting tax and paying bills. But it’s the financial side of things that, if not properly tended to, will kill a business off. That’s why it has always been important for us to democratise understanding of and access to financial tools for small companies, in the hope that, with a little help, they’ll have a better chance of success,” says Hegelund.

Beyond revenue and expenses

Effective accounting is essential for all companies regardless of size, but the new fintech solutions targeted at SMEs go far beyond revenue and expenses. Valified is one such fintech. Their mission is to help SMEs develop their businesses by focussing on sustainability.

Initially, our goal was to get more capital flowing in the direction of SMEs, but along the way we discovered that something else needed to be taken care of first. It turned out that a company’s sustainability is one of the most important factors today in attracting customers and financial investment. In order to reach our initial goal, we needed to look at sustainability first,
Jesper Kring, CEO of Valified.

According to Kring, SMEs are now, more than ever before, faced with a plethora of expectations and demands concerning sustainability—from customers, partners, legislators and the financial sector. If they don’t adapt quickly enough, these companies may struggle to survive.

Valified’s platform allows companies to gather their sustainability data and build an overview of where they need to make changes, in order to make the biggest difference. Not just for the sake of a good conscience, but because it’s important for a company to know about it’s own sustainability rating if they want to enter into a dialogue with the bank, with potential investors. It’s also an indicator of whether the company will be able to maintain loyal customers in a future increasingly concerned about the environment.

Although a lot of SMEs are already doing their bit for sustainability and the environment, Valified translates those actions into measurable achievements and goals. Just as accounting tools use data to help companies get an overview of their finances, Valified’s success is based on data concerning a company’s sustainability, that can be used to affect real change in the business.

“What we’re attempting to do is encourage the entire SME sector to get on board with the sustainability agenda, by making it easy for them to integrate it into their everyday business. With our software, they get to know their own company better, which helps them to prioritise and make changes at a realistic pace. And because this is also of interest to customers, banks and societies, our data, insights and links to the financial sector can give companies a real competitive advantage,” Kring concludes.

Already, Valified has a decent SME customer base and are in dialogue with banks who are interested in sustainability data in order to better assess the competitiveness of SMEs in the future. Their software will be tested and measured in new verticals as part of the ‘SME:fintech’ project.

Better together

Although many fintech companies have entered the SME market, that doesn’t necessarily mean competition for customers is fierce. Instead, most seem content to focus on their particular niche, which means that SMEs often need to take advantage of several fintech solutions in order to benefit as much as possible from digitalisation.

Crediwire, for example, relies on other fintech solutions—accounting data from programs such as Economic, Billy, Microsoft and Dinero—in order to do what they do best, and Nicholas Meilstrup doesn’t see this as a bad thing.

“There seem to be a lot of fintechs working together to help SMEs. That’s probably where we differ from the rest of Europe – in Denmark we are really good at collaborating and creating all-round solutions that bring different products together. If anything, that’s what makes us strong internationally: we don’t just want to compete, we want to collaborate,” he says.

SMEs stand to benefit greatly from such collaborations. For its own part, Crediwire collaborates with companies like Kontolink, November First and Likvido—all of which specialise in different realms of finance.

Like Meilstrup, Ageras’ CMO Martin Hegelund also sees the collaborative nature of the fintech sector as a good thing. Once an SME discovers the benefits of one fintech solution, there is a good chance they will continue their digital journey and discover other, often integrate-able solutions.

“Finance is the backbone of any company, so it makes a lot of sense that so many fintech startups are targeting companies. There are many exciting angles to tackle company finance from. Meanwhile, the fintech ecosystem is a good ecosystem to integrate new solutions into, which helps to create a network effect, drawing more and more in and, together, creating really great value for companies,” says Hegelund.

Get your copy of Copenhagen Fintech 2021 Magazine here

Sebastian Kjaer
Sebastian Kjaer
Sebastian is editor in chief of the Copenhagen Fintech Magazine. As partner and editor at TechSavvy Media he covers the Danish startup ecosystem on a daily basis
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