Banks and Fintech Collaboration can reshape spend automation

April 06, 23 | April 6, 2023

The worlds of Fintech and traditional financial institutions are colliding to unlock new innovations in SMB banking. 

Traditionally banks have focused offerings on large enterprises and find it hard to keep pace with the growing need for new-age digital solutions. Many are still using the same old approaches and processes and offering basic banking services. SMB firms are often grouped either with retail customers or large corporate clients. As a result, retail banking or corporate banking products have often been repurposed for SMBs.  

According to Capgemini’s World Payments Report 2022, banks are also struggling with monolithic and inflexible infrastructures, with 75% of executives, prioritizing costs towards keeping current systems running over innovating new value propositions – a clear barrier to needed investments in innovation and flexibility that SMBs crave. 

Small businesses are embracing an automation-first mindset and want products and services tailored to their needs.  In addition to banking products, they have a high latent demand for Fintech capabilities such as receivables automation, invoice management, cash flow forecasting, and embedded payment processes. And the market opportunity is significant. According to CB Insights, the total market size for business commercial banking is currently about US $1.85 trillion.  

Fintechs have stepped in to fill the gap. Approximately 89% of SMBs surveyed feel underserved by their primary banks and are considering a shift to more accommodating alternative Fintech challengers, who are driving the development of new business models through platforms and ecosystems. Dovetailing into an overall trend towards account aggregation, “banking-as-a-service” (BaaS), and embedded finance, these products are making rapid inroads and have earned high levels of trust among small business owners.  Fintechs operating in the B2B sector are typically highly agile technology players. propelling digital transformation initiatives for many organizations.  We focus on two areas which are interrelated – spend workflow automation and the emergence of SMB cards. 


Spend Automation

Many finance processes are still performed using Excel spreadsheets, resulting in siloed data and laborious processes. Fintechs are offering spend automation solutions spanning employee expenses, invoice management, and receivables to help businesses improve process efficiency and get an accurate snapshot of spending. Digitalisation enables businesses to use expanded insights to streamline procurement processes, unearth saving opportunities, and model working capital requirements for improved overall business planning.  


Emergence of SMB-specific Cards

Many Fintechs are bundling expense management software with corporate cards. According to an Ernst and Young study; The five-step journey to SMB Transformation, 55% of SMEs would like to be funded within seven days, and 31% would like to receive funds within three days. This is far from the current time it takes for most banks to approve credit. Banks have often been reluctant to lend to SMB firms or have charged higher interest rates due to the elevated credit risk profiles of SMB firms and complex risk assessments.  

Fintechs have a sweet spot. They understand the pain around traditional banking bureaucracy, manual processes, and lending delays. These players are entering into co-branded partnerships with banks capitalizing on new data sources and machine learning to bring corporate cards to startups to enhance working capital. Access to immediate credit lines can not only expedite the payment of suppliers but also help in securing early payment discounts.  As an example, Zaggle pairs credit cards with spend automation offerings. 

Another way startups are improving the corporate card experience for SMBs is by offering virtual cards. Virtual cards enable “dynamic controls,” which means that managers and finance departments can grant or deny types of transactions for employees. 


 Mutually Beneficial Partnerships

To grow the overall market, financial institutions and Fintechs need to align to provide SMB customers with the best of both worlds — the trust and the confidence that come from working with an established bank combined with the innovation and agility of a Fintech.  

Fintechs are data-driven but they don’t have the same history with their small business customers as a bank does, so their data is niche and finite. Additionally, as they expand, they’re running into growth issues — such as needing to embed additional financial services into their ecosystems — as well as compliance issues. And lastly, the most obvious advantage for Fintechs to partnering with a bank or credit union is that they’re able to tap into the financial institution’s captive audience, enabling even faster growth. 

Financial institutions understand that partnerships with Fintechs can expand reach. By partnering with Fintechs, banks can position themselves as trusted advisers, while offering the digital capabilities their small business customers crave. 


The partnership models range from:  

  • co-branded or white-labelling Fintech solutions to deliver modern-day spend automation services to their corporate customers.  For instance, Zaggle is partnering with banks to plug legacy frictions, extra-long TAT to meet daily working requirements of SMBs  
  • joint investments by the institution and the Fintech partner to control the customer experience. The bank gets the benefits of Fintech technology and new customers without having to do all the work. 
  • investing in Fintech start-ups to support the latter’s development of new technologies that banks, can deploy with ease. For example, Mastercard is investing in spend automation start-ups to enable banks to embed payments into core financial processes.  


Fintech and bank partnerships in the B2C payment space have evolved, Similar partnerships between incumbents, Fintechs need to emerge to help India’s 6 million small and medium businesses (SMBs) build digital-first, resilient businesses. Fintechs benefit from their solutions being incorporated into banks’ corporate offerings, driving greater market adoption. Banks benefit from the ability to deliver cutting-edge and unique payment capabilities that address the needs of corporates in a more nimble way than ever before. Finally, corporates benefit by continuing the relationship with their trusted bank partner while leveraging new-age Fintech capabilities.