Over the past few years, SME banking has evolved significantly, driven by technological advancements, changing regulatory landscapes, and the increasing demands of SMEs for more tailored, efficient services.
With the Global SME Banking Innovation Awards 2026 just a couple of months away, The Digital Banker sat down for a chat with Ben Kilpatrick, Partner, Banking and Capital Markets Consulting, KPMG Australia – who’s also serving on the judging panel of the awards for next year – discussing trends in SME banking, the role banks can play in enhancing accessibility for them, and the winning qualities he will be looking out for among the nominees.
The Digital Banker: From your perspective, what are some standout trends you are observing in SME banking that are setting benchmarks on a global scale?
Ben Kilpatrick, KPMG Australia: One of the most prominent trends is the shift toward digital-first banking models. Banks are increasingly offering end-to-end digital solutions, making banking more accessible and efficient for SMEs. These solutions range from seamless mobile banking apps to digital lending platforms that can assess creditworthiness in real-time. Digital banking solutions, particularly those that leverage open banking frameworks, are transforming the way SMEs access services. The push towards embedded finance is also notable — where financial services are integrated into the products or services SMEs need to work in combination, allowing them to access finance directly within their operating platforms (accounting software, point-of-sale systems).
Similarly, the growing use of alternative data sources (transaction data, social media activity and other behavioural metrics) in credit assessments is revolutionising SME lending, including some who are using real-time business performance data to determine creditworthiness. These solutions and platforms not only mean the bank is meeting their clients where they are in terms of available data – but it is also enhancing these innovators’ ability to make more informed credit decisions.
Artificial Intelligence (AI) and machine learning (ML) are providing banks with sophisticated tools to tailor products and services to individual SME needs. AI-driven predictive analytics helps banks offer personalised advice, suggest better financing options and remove the friction typically associated with accessing business finance. This is offering SME banks the opportunity to transform their cost-to-serve and streamline core CX episodes (some SME banks are noting a reduction of over 50% to loan approval times) for their broad range of customer segments within SME.
Globally, payment fraud (especially manual transfers) continues to plague the sector. SME banks continue to invest and evolve their security measures to protect their customers from these costly incidents – leveraging open-banking capabilities to deliver faster and safer payments and settlements. Digital adoption is widespread in B2B payments; however, activity is mainly in low-margin channels such as instant payments. Leaders in SME banking are looking for ways to capture and offer additional value – through capabilities such as invoice automation, reconciliation, and working capital tools. These are particularly important in small businesses where manual workflows persist.
In addition, advancements in technologies such as tokenised money and digital currencies, biometrics, blockchain for verification and quantum safe encryption continue to show how the fundamentals of ‘trust and safety in banking’ is transforming. However, we observe that adoption is inconsistent. Regulatory uncertainties, infrastructure gaps, and varying technical standards are causing progress to occur only in isolated areas, leaving more opportunity on the table for innovators.
SMEs face a unique set of challenges compared to corporates – what role can banks play in bridging this gap and enhance accessibility for this sector?
SMEs face unique challenges in accessing banking services primarily due to their size, data and risk profiles. Three distinct challenges that are common across the globe are:
Access to credit: Unlike large corporates, which have established credit histories, SMEs often struggle with limited access to capital. Banks tend to view them as higher-risk borrowers due to the lack of extensive financial records. Alternative lending models and the use of alternative data sources – provide new ways to think about credit risk – challenging the traditional model of relying on credit scores or historic financial data alone.
High transaction and compliance costs: SMEs often face higher transaction fees for payments, especially cross-border, compared to larger firms that can negotiate better rates due to their volume. Leading innovators are finding ways to offer SMEs lower-cost cross-border payment solutions, making it easier for smaller firms to engage in international business without the high fees typically charged by traditional banks.
In addition, the SME segment continue to shoulder rising compliance costs as regulators’ demands add more pressure. In Australia, for example, KPMG’s recent research with one of the leading large scale SME banks highlighted that over 60% of SME businesses believe red tape has increased over the past 12 months – impacting both the bottom line as well as putting considerable burden on owners and management teams.
Limited financial advisory services: Large corporates typically have dedicated teams of financial advisors and access to sophisticated financial products. SMEs, however, lack this infrastructure, leaving them vulnerable to poor financial decision-making. When you consider the broad array of businesses captured under a bank’s SME segment, it is a challenge to scale suitably personalised banking services to the entire portfolio in way that is suitably differentiated for their needs. Leading banks are looking to partnerships and an ecosystem approach to offer SME customers with tools (such as automated financial advice tooling and book-keeping platforms) to help them make more informed financial decisions through a truly scalable model.
How do you see regulatory environments, especially in markets such as Australia, influence SME banking for the better?
As governments and regulatory bodies tighten rules surrounding finance and banking, we see three key influences on SME banking:
Enhanced Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations: Globally, there is a heightened focus on AML and KYC regulations to help address the ever-present issue of financial crime. Banks are required to implement stricter compliance processes to prevent fraud, which can be costly and time-consuming for SMEs. While these regulations are critical for maintaining financial integrity, they also create an added burden for SMEs, who often lack the resources to comply with complex regulations. Banks will need to find ways to support their customers in efficiently meeting these increased demands without adding to their cost to comply.
Payments and open banking: Regulations such as the EU’s PSD2 is a key force driving innovation, requiring banks to open their payment services to third-party providers. This allows for more competitive, customer-centric banking experiences. Open banking, in turn, empowers SMEs to have better control over their financial data and use it to access better products. This trend helps banks provide SMEs with more personalised services but will also force banks to innovate quickly to stay competitive. Innovation of products and services within this sector will continue to move quickly to respond and capture market demand.
Digital currency regulations: The rise of digital currencies, including Central Bank Digital Currencies (CBDCs), is a trend that is expected to significantly impact the SME space, both in terms of cross-border payments and alternative financing options. For example, in Australia, The Australian Prudential Regulation Authority (APRA) has been moving towards better regulation of digital assets, which will likely affect how SMEs engage with blockchain technologies and cryptocurrencies. While this could foster innovation, it will require banks to adjust their compliance and operational models accordingly whilst still meeting the needs and opportunities this technology provides to their SME customers.
Looking ahead, what according to you, will define the next generation of SME banking excellence that will be celebrated in future editions of the Global SME Banking Awards?
Some of the most influential innovations on the horizon for SMEs in 2025 and beyond revolve around automation, real-time payments and fraud protection.
Real-time payments and instant credit: The adoption of real-time payment systems is revolutionising cash flow management for SMEs – which has always been one the main challenges for this sector. In many markets, including Australia and the EU, payment networks are enabling instant settlement, which allows SMEs to optimise cash flow and reduce dependence on traditional credit facilities.
Automated SME financing: The trend of automated SME financing continues to gain momentum. Financial products that offer instant, algorithm-driven lending decisions based on business performance data, including from point-of-sale systems or analysis of business cash flow patterns in real-time, are expanding globally. These significantly shortens loan application times and reduces overhead costs for SMEs.
AI-driven fraud detection: As SMEs become increasingly reliant on digital transactions, cybersecurity becomes a more pressing concern. The integration of AI for fraud detection is crucial for safeguarding SME transactions, ensuring trust in digital banking platforms. With AI systems constantly learning and adapting, these systems can detect unusual transaction patterns almost instantly, reducing fraud risk.
As a judge for the Global SME Banking Awards 2026, what qualities or innovations are you particularly looking for, that truly demonstrate an impact for SMEs?
As we look towards 2025-2030, several characteristics will define the most forward-thinking SME banks:
A business model that focuses on true SME segment understanding: SME owners want simpler, personalised, reliable, holistic banking relationships; banks that understand their business and constraints, not “one‑size‑fits‑all” solutions. Great SME banking leaders don’t assume all SMEs are alike. They understand the diversity in size, sector, geography, cash‑flow dynamics, regulatory exposure, risk capacity, growth ambitions of the clients they serve. They build segmentation, tailor products, embed advisory, simplify access, provide tools and education because SMEs’ failure or success is often determined by non‑financial variables such as cash‑flow timing, regulatory or permitting delays, input cost volatility and supply chain shocks. Leaders who understand those nuances can design lending, payment, advisory and risk‑mitigation products that meet these needs.
Seamless integration with business ecosystems: Disruptive innovators in the SME banking space recognise the need for more integrated approaches to how they solve for some of the unique challenges of the sector. SME banks will increasingly focus on offering integrated financial ecosystems that include payments, accounting, lending, and even tax management under one roof. This kind of integration will save SMEs time and reduce friction in managing their financial operations.
Strategic agility and digital‑first innovation: Leaders who are excellent in SME banking anticipate change (economic, regulatory, technological) and move quickly; they adopt digital tools, flexible credit evaluation, data‑driven decision making, embedded finance, etc. They use digital to adopt new business models, faster service and better risk management. Given the unique challenges that SME businesses face this digital agility can reduce friction, improve speed of lending and decisioning, lower costs, enhance customer experience, and help banks scale SME portfolios more sustainably.
From a more personal perspective, I hope the SME banking sector continues to evaluate its role in supporting sustainability efforts. Innovations required to address some of our greatest environmental and social challenges will require banks to adopt different business models to support these ‘game-changers’ to scale for impact.
My observation over the last two to three years is that many have backed away from the opportunity this provides due to the tension between achieving near-medium term growth in challenging headwinds and the slow, costly work of integrating sustainable practices and the associated complexities in pricing, management and enforcement. With a thriving sustainable finance sector to support relevant industries and the innovators within, achieving broader impact on sustainability goals will remain a challenge.
