“Opportunities do not come with their values stamped on them.” Yet, in the case of small and medium enterprises (SMEs), the value is not only evident – it is enormous, quantifiable and increasingly urgent. SMEs are not just a segment within an economy; they are the economic engine. In the Middle East and Africa, SMEs account for 94% of companies and 86% of private-sector employment in the UAE1, according to ACCA. And globally, they represent over 90% of businesses and more than half of employment2.
Despite this centrality, most banks have historically lumped SMEs under either retail or corporate business units, treating them as an operational afterthought rather than a strategic growth driver. What this approach overlooks is the fundamentally distinct nature of SME banking, its business dynamics, risk contours and customer expectations warrant tailored offerings, specialised teams, bespoke digital journeys, advanced business models and differentiated strategic intent.
SMEs Are Not Retail. Nor Are They Corporate.
SMEs operate in a hybrid zone requiring the agility and simplicity of retail offerings with the scalability and complexity of corporate solutions. Their banking needs are extensive and nuanced:
- Managing cash flow across tight working capital cycles
- Accessing flexible, fast and digital credit
- Facilitating cross-border trade and FX
- Accepting and reconciling digital payments
- Ensuring compliance with tax and regulatory norms
- Connecting with digital platforms for visibility and growth
The EY Global SME Survey highlights this duality: while 63% of SMEs still prefer traditional banks, a growing 56% now use fintechs for payments or banking services3. The message is clear; banks continue to hold trust but are rapidly losing relevance in key engagement areas.
This erosion is amplified by persistent gaps. Many banks offer diluted versions of corporate products to SMEs, resulting in friction in access, usage and satisfaction. Onboarding remains manual and time-consuming. Credit approvals are opaque and inflexible. Advisory services are limited. And digital journeys are often fragmented or underdeveloped.
Others Are Moving Fast and Winning
As banks lag, non-traditional players are capturing the SME opportunity with laser focus and platform-scale ambition. Platforms like Shopify, Square, Toast and SumUp are now responsible for processing nearly 30% of global consumer purchases, with even deeper penetration in SME segments (McKinsey, 2024)4. These platforms embed financial services directly into the SME’s core operating workflows removing friction and making banking invisible.
Meanwhile, fintechs and digital challengers are targeting specific pain points with precision. The opportunity here is significant.
Lending, in particular, is undergoing disruption. Fintechs, BigTechs and specialist SME lenders are rapidly gaining market share by offering real-time credit scoring and digital disbursements. These challengers acquire SME customers through seamless credit experiences and then expand into adjacent services gradually taking over the entire financial relationship.
The scale of this shift is vast. The Adyen-BCG Embedded Finance Report 2024 estimates that the total addressable market for embedded finance in SMBs is $185 billion, yet only 20% of that has been realised5.
51% of the Dubai SMEs are exporting to other countries (as compared to 44% in EU-47 and 18% in New Zealand)6. A McKinsey study in the UK found that 23% of SMEs now use fintechs for cross-border payments, compared to only 13% using banks—illustrating a clear gap in traditional offerings4.
The longer banks delay, the larger the share captured by others.
Why Banks Can and Must Lead Now
The critical question is not whether banks understand the importance of the SME segment—they do. The real issue has been viability. Historically, serving SMEs has been perceived as expensive and risky characterised by high acquisition costs, thin margins and operational complexity.
But that calculus has changed. Today, banks are better positioned than ever before to serve SMEs profitably, at scale and with differentiation—thanks to a confluence of enablers:
- Digital-Only Models
Zand Bank empowers UAE SMEs by seamlessly bridging TradFi and DeFi, redefining wallet and custody offerings. The bank achieved record-fast core migration (< 100 days), first UAE bank for regulated digital-investing, and 22-month break even with 2.4× revenue growth.
- Marketplace Integration
UnionBank of the Philippines has launched a full-fledged SME marketplace, offering not just credit and payments, but also access to business services, suppliers and distribution partners making it an indispensable growth partner to SMEs.
- Embedded Banking
Amazon GS Credit Line offers SMEs embedded credit based on sales performance—servicing working capital needs in-context and in real time. Banks that can integrate into such ecosystems can expand their reach exponentially.
- Cloud and AI-Enabled Intelligence
Banks now have access to low-cost, high-performance infrastructure. AI-driven credit scoring, predictive cash flow analytics and contextual product recommendations allow banks to offer tailored experiences even to long-tail SME customers.
- Collaborative Models
Karnataka Bank in India exemplifies a co-lending strategy for SME inclusion. Through a partnership with Paisalo under an 80:20 co-lending model, the bank is delivering credit to micro-entrepreneurs and SHGs that traditional underwriting would typically exclude.
- Self-Service with Human Touch
RAKBANK in the UAE has reimagined SME onboarding through a unified engagement hub—50% of SME customers opt for digital account opening, and over half of transactions are conducted through self-service.
These are not isolated pilots. These are bank-led, scalable and profitable models. The path is clear. What remains is the strategic will to prioritise and invest.
The Window of Opportunity is Narrowing
SMEs are digitalising rapidly. They are seeking integrated, intelligent and intuitive experiences. And they are finding them from platforms that do not carry banking licenses.
Banks that do not adapt risk relegation to backend utilities are mere infrastructure providers to someone else’s customer experience.
“Opportunities do not come with their values stamped on them.”
But this one does, and it is rapidly being claimed.
The SME segment is not a box to be checked it is a business model to be led. With the right orchestration of platforms, partnerships and technology, banks can do more than serve SMEs. They can become their growth partners.
The question is not whether the SME segment is valuable. It is whether banks are willing to seize the moment before it is gone.
Sources:
- https://abmagazine.accaglobal.com/content/abmagazine/global/articles/2025/jul/practice/uae-welcomes-smes.htm
- https://www.worldbank.org/en/topic/smefinance
- https://www.ey.com/en_lu/insights/financial-services/emeia/why-digital-lending-is-the-future-for-banks-and-smes
- https://www.mckinsey.com/industries/financial-services/our-insights/global-payments-in-2024-simpler-interfaces-complex-reality
- https://www.adyen.com/index-reports/embedded-finance-report-2024
- https://sme.ae/SME_File/Files/STATE_of_SMEs_in_Dubai_Presentation.pdf
