Ep. 144 - SME Lending's Missing Harmonisation: A European Problem, with SME Bank

Jasmine Chana (0:05)

Welcome back. I'm Jasmine Chana from The Payments Shed, live from Fintech Meetup in Europe. Today, I'm joined by Thorsten Seeger, member of the board at SME Bank. Welcome, Thorsten.

Thorsten Seeger (0:14)

Thank you for being here. Thank you for having me. It's a great pleasure.

Jasmine Chana (0:17)

If you could start by telling us a little bit about yourself and SME Bank, that would be great.

Thorsten Seeger (0:20)

Yeah. So I've spent the last 20 years, really, of my life in SME banking and SME financing. The first 10 years of that, really, working at large corporate banks in the UK, Barclays and Lloyds, and then the latter 10 years working in Fintech companies across Europe, covering nine different countries in the continent.

So first at Funding Circle, then October and now at SME Bank. And SME Bank, as the name says on the tin, is a bank for SMEs, a digital bank originating in Lithuania. But with a very big European ambition, we want to be the business bank for established SMEs all across Europe.

Jasmine Chana (0:55)

SME Bank is already live lending in five countries. We've seen first hand how differently this works market to market. Why has that been so hard to fix in terms of the harmony across the EU?

Thorsten Seeger (1:06)

I mean, lending really is one of the very few product classes in financial services that have not been harmonized across the EU. If you think about in general financial services, you have got USIS, you have got MIFID, and potentially some point in time also a capital markets union. But lending has been really ingrained in local national law and everything. And it's an absolute nightmare. It's really bad for customers, it's bad for providers.

But every country has its own rules, every country makes up its own rules and the way how it works. And it's really, yeah, it's not great for customers, right?

Jasmine Chana (1:37)

Yeah, and what changes from one country to the next?

Thorsten Seeger (1:40)

Pretty much everything.

What actually does not change, maybe this is a more important part is, what does not change is the customer. And the customer's needs doesn't really change. What a customer wants from their bank or from a financial services provider when it comes to lending is they want to have a fast answer, they want to have a fair price, and they want to have a transparent process in their own time. That's what everybody wants. But how then that is implemented in each country by itself, really changes quite dramatically. But first, of course, when you look at data availability, and the way you gather data, in some countries like, for example, Lithuania or the Baltic states is very digital already. So you can get a lot of information online about your customer, you can pull it through APIs, and it's a very smooth process. When you look at countries like Germany or Netherlands as another example, it is not very smooth, actually. There's no real registers about financial data. You cannot pull anything, and customers will send you PDF documents that you then need to work with somehow. So data gathering is the first part that differs really very much. But then when you come to registration of security, it's a very different process each country. When it comes to recovery of the loan, because of course in lending, giving the money out is easy, getting it back is the hard part. So actually recovery are also different country by country.

Basically, you start from scratch wherever you go.

Jasmine Chana (2:54)

Okay. What would harmonization mean for a small business owner?

Thorsten Seeger (2:58)

What it really would mean for the customer is more choice and a better price there for it, like a better fit in terms of what do I want. Because right now, most players will only work in one country or maybe two or three, but nobody does this across the EU. If you had a few bigger players that were able to offer that in 27 member states, while the choice of the customer would get so much better, and we all know when the customer has more choice, that drives better service and better price.

Jasmine Chana (3:23)

Okay. And how has digital SME lending evolved since SME Bank first started out in Lithuania?

Thorsten Seeger (3:31)

I mean, maybe I would think about, I've been in this industry now for 10 years, and looking how this evolved over those 10 years, the first wave was probably starting in about 2015-ish, so 12 years ago, when the first Fintech leaders went into the market, started. It was all about speed and a little bit about transparency as well, but really it was mainly about speed, getting small loans fairly fast.