TFG spoke to Mishal Ruparel, General Manager at Banking Circle, about the new applications of technology in banking to help better serve the underbanked SMEs. Using AI-driven credit scoring and new approaches to analyse credit card transaction data, Banking Circle’s proposition is game-changing the world of SME finance.

Featuring: Mishal Ruparel, General Manager, Europe, Banking Circle

Host: Deepesh Patel, Editor, Trade Finance Global

Mishal Ruparel: My name is Mishal Ruparel, I’m the General Manager for Banking Circle, and I’m based in London.

Deepesh Patel: Great, thank you. So FX and payments, give me three changes that are happening right now.

MR: Three changes in FX and payments. Good. So, Banking Circle provides banking services, to FinTechs and banks. So we’ve seen a lot of the trends and changes that are taking over the whole payments ecosystem.

Three key changes in the FX and payments sector

  • Firstly, on the payments side, we’re seeing a real drive in cross border payments. So there are a lot of Asian providers that are coming into Europe now. Servicing clients in Asia, marketplace sellers that want to be selling goods and services on Amazon. So there’s a real shift that we’re seeing, and they have quite demanding payment needs, you know, local payment requirements. So that’s something that we’re really seeing a big drive-in.
  • What else are we seeing, we are seeing quite a bit of pricing pressures as well. So you know, payments are becoming cheaper. There’s a lot more pricing pressure around cross border payments, as well. I think this is something that all of the FinTech and banks are experiencing in this space.
  • And finally, transparency seems to be the biggest buzzword right now. When it comes to FX, I think, gone are the days when a provider didn’t understand or didn’t know what FX rate they’re charging – I’m having a lot more conversations with clients around transparency, what are the margins and how they are being calculated? I think these are all key trends that we’re seeing in this particular market.

Is financial exclusion, a big problem for SMEs?

Banking Circle White Paper: Financial inclusion For Europe’s SMEs. Building a Circle of Trust.

Absolutely. Like – this is a major issue right now in the market, and it’s something that we’re being conscious of, and we’re trying to build solutions so that we can tackle this, tackle this issue. There is something like 24 million SMEs across Europe, you know, we have, you know, around 5 million SMEs in the UK, 90% of UK businesses are SMEs. We carried out a study quite recently around financial inclusion. And one of the things that was pretty evident is that many SMEs are excluded from accessing core banking services, so many can’t get a loan. You know, 50%, during the research we did, said they couldn’t get alone, those that did got a loan that wasn’t tailored to their business. So you know, SMEs are seasonal, no two SMEs are the same. So how do you build solutions for a segment of clients that need part of the tailoring? It’s not easy. And I think we’re seeing that. That’s a real problem right now in, in the financial ecosystem.

Yeah. So how is Banking Circle helping its clients? I guess, to solve this issue?

I think we have a focus on two areas that we believe will add real value to this particular segment. I think the first is around helping with the cash flows. So working capital is a real challenge for SMEs. How do you access working capital? How do you help grow your business?

And what we’ve done is we’ve developed a lending solution that empowers our clients- and our clients are FinTech, our clients are banks – we’re providing loans to their underlying merchants. Now, you know, these are tailored loans, this is very much around the cash flows of that particular business, so if you’re a business that’s busy, you’ll pay off more if you’re required to pay off less.

And the way in which we assess the risk on that business is also different from a traditional bank. So we will look at, for example, card data, which is very relevant, because a lot of these businesses are restaurants, hairdressers, which are struggling to get loans, but you know, the real businesses, they accept card transactions, so we should use that as a way of assessing whether that business is good for a loan or not. And by using this, we have an 80% approval rating on our loans. So you know, it’s a really good, interesting smart way of assessing if a business qualifies for one of our lending products. So that’s one area, which is geared towards working capital.

The second area is around enabling banks, enabling financial institutions with access to a local clearing in the UK in Europe. So you know, that’s one of the reasons why we’re here in Sibos, is. You know, we’re launching our correspondent banking solutions, or ICM solutions, one of which is access into the UK and European clearing systems. So these banks that are servicing SMEs and corporates can provide local access to these clients to collect and make payments in the UK and Europe as well.

Great. Well, thank you. Thank you very much. It’s very interesting to hear about those two, those two initiatives.

Particularly, you know, we hear a lot about the Basel III regulation and having unintended consequences for SMEs from the bank side, but actually, it’s flipping that on its head working with some of the other perhaps nonbank financiers to look at different ways to assess that risk, so that you can approve more credit to some of the smaller SMEs that need it most. And here we are at Sibos with a bunch of new technologies, looking at, you know, AI, for example, will help to help you plug this gap for SMEs, so who knows very interesting. And then I guess, access to the wider market access to the clearing systems and looking at real ways to make those processes more efficient, which ultimately helps that problem of, of financial exclusion that we see in the market. Absolutely. Great. Well, Mitch, thank you very much for joining us.

Thank you very much.