How a new technology platform can help banks unlock financing for SMEs

Given the importance of small-to-medium enterprises (SMEs) to the global economy, banks need to ensure they are serving this largely underserved market. A lack of access to finance is one of the main constraints hampering increased SME growth, particularly in developing economies. Late payment for services and long invoice maturity, resulting in significant cash flow deficits for small businesses, can hamper short-term agility and long-term growth and investment.

For banks, this is an opportunity to provide the SME market with a solution. And, for the EY team in the Czech Republic, this was the basis of a new challenge – providing banks with an innovative online solution for SME clients and the ability to provide financing in a frictionless, quick way. It also afforded an opportunity for the EY team to leverage their previous experience of building a mobile-first, AI-enabled digital platform – Impresto – which enhances banks’ lending processes to retail customers.  

Tapping into an ecosystem of technology partners and startups, the EY team worked to develop a solution which would help raise finance against already-issued – but as-yet unpaid – invoices. This would enable better management of an SME’s cashflow despite the common challenge of late payment and the complexity of getting a working capital loan from banks.

To confirm that the platform worked, the EY team conducted a three-month trial with one of the largest banks in Central Europe. According to Jakub Hytka, Senior Manager, Ernst & Young, s.r.o, in building a minimum viable product that was not fully automated, it was possible to test the platform very rapidly after a couple of months of development with real clients to assess the market potential. This avoided the risk of large, early-stage investment.

Quick and seamless access to capital

The success of the proof-of-concept stage provided the team confidence to build the full-scale app.  The result was Cashbot – an AI-enabled app which offers the financing of invoices for SMEs. It also provides the potential for third-party insurance against the SME customer's inability or unwillingness to pay the invoice.

For banks that are interested in servicing SMEs and have an appetite to enhance their digital services, Cashbot’s easily integrated software ensures that banking integrations are minimal and quick to set up. The entire platform operates in the cloud, reducing a bank’s IT load. Overall, the app can be deployed by banks within three months. 

The app works by allowing an SME to upload its invoice to the app and choosing its preferred financing option based on the value to be reimbursed and the one-off fee. SMEs  can also decide whether or not they want to insure the invoice. The business receives its money from a bank on the next business day and, generally, the financing is 30 days longer than the invoice due date. Subsequently, the SME pays the money back to the bank after receiving the issued invoice from its customer.

During its development, the EY team helped to ensure that Cashbot complied with local and EU regulations, along with developing an AI-enabled scoring engine and anti-fraud controls. 

Since its first year in the market, Cashbot has grown rapidly, financing more than 5,000 invoices in the Czech Republic alone, with that number expected to increase. Based on analysis of the Czech market and the number of SMEs active there, the EY team has calculated that Cashbot could eventually help approximately 25,000 to 50,000 SME customers or approximately 10% of the target market. Given the success of Cashbot, EY is developing additional SME-focused credit solutions, such as investment and working capital loans.  

Both banks and SMEs benefit:

Advantages for banks:

• New revenue streams and acquisition of new clients
• Fast implementation of a ready-made solution
• Market differentiator for a new client segment
  
• Smart digital product that complements existing product portfolio
• Robust credit scoring compared to traditional approaches
• Optical character recognition (OCR) components available for process automatization
• Comprehensive process automation
• Supports the local economy
  

Advantages for SMEs:

• Stabilizes cashflow to facilitate reinvestment
• Instant payments for invoices
• Invoice payments for insurance
• Transparency due to one-off fee
• Entirely online management of invoice and loan due dates
  

Cashbot can support banks to build strong, central relationships with SMEs, granting the necessary financing and support to help them to thrive. This support can be crucial for small businesses to grow, resulting in a boost to the wider economy – and leading to lasting, trusted customer relationships for banks and SMEs alike.