Why banks are losing the SME market - and how to win it back

Legacy products can’t serve today’s economy. But partnerships can.

Why traditional bank products are being left behind

For decades, working capital solutions like the business overdraft were the cornerstones of SME finance. Simple, familiar, dependable. But in today’s growth economy, it’s no longer enough.

Modern SMEs operate differently. They move faster, demand more, and expect financial tools that adapt to their pace of doing business. 

Banks, constrained by legacy infrastructure and rising operational costs, are struggling to keep up. Meanwhile, challenger banks and fintechs now account for 60% of SME lending in the UK - and rising. 

These new players aren’t just faster. They’re building around how SMEs actually work: digitally, dynamically, and in real-time. When banks can’t deliver, SMEs look elsewhere. Traditional institutions are losing ground - fast.

Fintechs are winning not just on speed, but on relevance. They’re designing products around the SME, not the other way around. 

The four forces reshaping SME lending:

1. Open Banking
   Fintechs are leveraging real-time data to make faster, smarter lending decisions. Dynamic limits based on live cash flow outperform static approvals based on outdated records. Traditional overdrafts feel rigid and reactive by comparison. 
2. Banking-as-a-Service (BaaS)
   With BaaS, challengers can launch new credit products in weeks - not years - and embed them directly into the platforms SMEs already use to run their business. While banks struggle with complex infrastructure and integration, challengers are scaling tailored working capital solutions at speed.
3. Generative AI
   AI is transforming the lending lifecycle - from onboarding to underwriting. Fintechs are now delivering instant approvals, personalised credit limits, and fully automated experiences. Traditional overdrafts can’t match that level of intelligence or adaptability. 
4. Personalisation at scale
   By tapping into real-time financial data from account platforms, bank accounts, and credit bureaus, fintechs are delivering personalised lending at scale. This result: smarter risk assessments, dynamic credit limits, and lending that actually fits the business.

Banks can still have the advantage - if they act now 

The SME market is evolving fast. Expectations around access, speed, and simplicity are reshaping how finance is delivered, and traditional products are falling behind. 

But banks still have a big advantage - with deep capital, trusted brands, and large customer bases, they’re well-positioned to reclaim their role as the heart of SME finance.

A full overhaul isn’t required. What’s needed is a better route to market. By partnering with fintechs like Bourn, banks can deploy capital more efficiently through embedded finance partnerships and structured credit facilities, bringing modern SME lending products to market in weeks, not years. The opportunity is still wide open. 

How Bourn helps banks compete - and win

Bourn helps banks modernise SME lending without even mentioning the word ‘transformation.’

Our Flexible Trade Account (FTA) is a dynamic, AI-powered alternative to the traditional overdraft and a fully automated evolution of invoice finance. 

It’s built for modern SMEs, with the option to white-label the solution or establish a Special Purpose Vehicle (SPV) in partnership with Bourn.

The FTA offers:

• Real-time credit decisions. Our platform uses open finance data and machine learning to deliver instant, personalised lending outcomes.
• Seamless experience. The FTA integrates directly into your existing systems or digital journeys.
• A smarter overdraft. Dynamic credit limits based on real-time revenue, so you can support SMEs more flexibly - without additional risk or overhead.
• Speed to market. Launch embedded finance offerings with Bourn’s white-label model in weeks.

Working with Bourn isn't just a product upgrade - it’s a competitive edge:

• Grow your SME portfolio without adding risk and operational costs
• Win back market share from fintechs and alternative lenders 
• Deliver smarter, simpler customer experiences, without the tech debt
• Drive capital efficiencies with secured business lending products 
• Reduce cost and complexity with embedded automation

The Bottom Line

The SME market is not underserved because of a lack of capital. It’s underserved because traditional lending products can’t keep up. 

The traditional overdraft is no longer fit for purpose. But the need for flexible, real-time working capital is greater than ever. 

Partnering with fintechs like Bourn is a strategic imperative for staying competitive and reaching those customers who need financial support the most. 

Learn more about the FTA.