What Do SME's Really Want from Their Bank?
Alex Mueller (Holvi) & Thorsten Seeger (SME Bank)
Germany's SME lending market is vast and underdeveloped digitally, with traditional banks dominating but often slow and inconvenient for entrepreneurs, who demand seamless, fast, digital processes, especially in onboarding and KYC. Digital lenders face rising interest rates and investor caution, pushing many toward full banking licenses to access cheaper capital. Competition among neobanks has intensified, expanding from payments to financing via integrated software solutions. AI enhances operational efficiency and customer service, with future growth tied to technological acceleration, cross-border collaboration, and evolving customer digital sophistication.
"SME customers want an easy service, no headache. They want you to leave them alone unless you add value—and have everything done really fast and digital nowadays."
Summary
- Germany's SME lending market is large but digitally underdeveloped, with traditional banks preferred for loans. - SMEs seek seamless, fast, digital loan processes but face long waits and complex KYC, especially in Germany. - Digital lenders face capital access challenges post-2023 interest rate hikes, driving some to seek banking licenses. - Competition in SME fintech is fierce in digital acquisition; collaboration between digital banks and traditional banks varies. - AI and tech are used mainly for efficiency; future focus includes revenue generation and eased SME admin tasks.
Article
Digital revolution in SME banking falling short of customer needs, fintech leaders warn
German market highlights gap between what businesses want and what banks deliver
Small and medium enterprises (SMEs) across Europe are being failed by traditional banking services that don't match their modern needs, according to industry experts speaking at the Nordic Fintech Summit in May.
Alex Mueller from Holvi and Thorsten Seeger from SME Bank painted a picture of a financial services landscape where banks – particularly in Europe's largest economy, Germany – are struggling to meet the digital-first expectations of today's entrepreneurs.
"What customers really need is a seamless process that doesn't give them a lot of headaches," said Seeger during the panel discussion on what SMEs truly want from their banks. "In the traditional banking world, specifically for this SME customer space, there's still not that much utilization."
The German paradox: Europe's economic powerhouse lags in digital finance
Germany presents a particular paradox, according to the speakers. Despite being one of Europe's largest economies with approximately four million SMEs – fourteen times the size of Finland's market – it remains surprisingly underdeveloped in terms of digital lending services.
"When it comes to digital lending perspective, [Germany is] one of the least developed markets," Seeger explained. "Digital data availability and the engagement of customers to go out and work with somebody other than their Sparkasse or Volksbank is incredibly low."
Mueller reinforced this view, noting that even at Holvi – a digital-first financial services provider – they sometimes still direct German customers seeking loans back to traditional banks because "they will know your business better and will be able to give you a loan in a way that digital banks cannot do today."
Time-poor entrepreneurs face frustrating hurdles
The speakers highlighted a fundamental mismatch between banking services and SME needs. Entrepreneurs who run their businesses during conventional working hours often cannot accommodate the limited operating hours of traditional bank branches.
"If I'm an entrepreneur, I don't have time to wait for eight weeks to get my answer," Seeger said, describing the lengthy loan approval processes that can stretch to two or three months. "They say, 'Can you please come to the bank and actually explain your business plan? And by the way, we only open between nine and eleven, and then maybe in the afternoon for two days, between three and four as well.'"
This inconvenience drives demand for digital services that operate on entrepreneurs' schedules – evenings and weekends when business owners finally have time to address administrative tasks.
KYC and onboarding: The first major pain point
Both speakers identified customer verification and onboarding as critical friction points, particularly for digital banks aiming to improve the customer experience.
"For a digital bank today, one of the most important things that you can actually develop is a really fast, straightforward, and easy-to-go-through KYC and onboarding process," Seeger noted.
Mueller shared an eye-opening comparison between Finland and Germany: "KYC in Finland for the average Finnish entrepreneur takes less than a minute... I try to do this in Germany where we still have video identification as one of the major requirements by the regulator. The same process, to get to the same result, takes on average twenty minutes."
Interest rate shifts redefine the lending landscape
The panel identified 2023's interest rate increases as a watershed moment for digital lenders, fundamentally altering their business models.
"The world fundamentally changed in 2023 from a lending perspective," Seeger explained. "Interest rates for more than ten years were historically low. Institutional investors from all over the world were throwing money at fixed-income products... But then come 2023, interest rates go up from zero percent to four percent."
This shift has made access to capital significantly more challenging for digital lenders, prompting many to pursue banking licenses despite the additional regulatory obligations. "Why do you become a bank? Because you get access to depositors, which means cheap money," Seeger said.
Competition and collaboration in a fragmented market
The competitive landscape for SME banking services has intensified dramatically, with Mueller noting that "suddenly the competitors don't fit into one slide anymore." Traditional banks, neobanks, and specialized fintech providers are all vying for pieces of the SME market.
Despite this competition, both speakers suggested there remain opportunities for collaboration between traditional banks and fintechs. Mueller indicated that Holvi's positioning as an "operational bank payment account" doesn't inherently compete with traditional banks that focus on larger financing needs.
Seeger offered a more skeptical view: "My experience in most European markets is that large banks actually don't care about the SME customer segment. They're really not interested. You can't make a lot of money from it because it's neither retail nor corporate banking."
AI and technology: From cost efficiency to revenue generation
Looking toward the future, both speakers highlighted the growing role of artificial intelligence in financial services – not just for internal processes but as tools to enhance customer experiences.
"Use of AI has got a brand, but wasn't really introduced by the time we got a brand in transaction monitoring," Mueller observed. He highlighted document processing for bookkeeping as a prime use case for AI technologies that can "reduce the administrative hassle for the entrepreneurs."
Seeger added that while current AI applications focus primarily on cost efficiency, "where I really think the future is coming is also to think about how can we enable our SME customers to benefit from AI and help them create revenues, but also create revenues for ourselves through that."
The next three years: Technology acceleration and European champions
The speakers predicted that technology will continue to drive rapid change in financial services, with customer expectations evolving alongside technological capabilities.
"We're on this steam train of technology accelerating faster and faster, and I don't think this is going to change," Seeger said. "Banks and fintechs need to continue to evolve faster and faster in order to stay on the cutting edge of technology."
He also expressed hope for greater collaboration across European markets to create "digital champions" in financial services that could better compete with dominant American institutions.
Mueller predicted that business financial tools will increasingly mimic consumer-grade experiences, a trend already apparent in larger European markets that he expects to accelerate in the Nordics.
As the gap between customer expectations and traditional banking realities continues to widen, the message from the Nordic Fintech Summit was clear: the financial institutions that best understand and address the real needs of SMEs – seamless digital experiences, rapid service, and value-adding technologies – will be positioned for success in this evolving landscape.
Part of Nordic Fintech Summit