Grants available to improve access to credit for European small businesses
Today, Mastercard launched its latest Strive Innovation Fund. The fourth of its kind, this round offers up to €500,000 to up to 20 winners developing digital and data-first solutions that promote the growth of small businesses in Europe.
Mastercard Strive EU’s four innovation fund themes
The Fund seeks solutions that support small businesses to:
- Unlock working capital and credit through embedded finance, which will be explored in this blog.
- Go digital safely by bolstering cybersecurity.
- Navigate evolving consumer preferences and regulatory expectations around environmental sustainability.
- Harness artificial intelligence (AI) to save time and make money.
Europe’s small businesses need credit.
Europe’s small businesses are currently facing a high need for financing. Their operating costs have spiked because of rising inflation, labor costs, and energy prices. Their working capital requirements have increased as they have had to expand inventory to prevent stockouts due to disruptions in global supply chains. Their revenues have slowed in the face of a potential economic slowdown. Their cash flow is tight as customer payments are increasingly delayed.
Yet, the availability of affordable financing is limited for European small businesses right now. This is in part because they depend on banks for the majority of their external financing (70%, compared with 40% in the US). Banks may struggle to offer loans to small businesses because of their limited financial history, credit history, and collateral. This is compounded by recent macroeconomic factors and regulatory changes that have resulted in capital constraints for European banks across the board.
The upshot is that Europe’s small businesses are facing a growing credit gap; in fact a quarter of EU small and medium businesses report severe difficulties accessing credit. Although this situation presents significant challenges for small business owners, it represents a compelling opportunity for innovative solutions that can address the challenges for both banks and small businesses, now and in the future.
Enter embedded finance.
Imagine a small business owner logging into an e-commerce platform and using it not only to sell goods, but also to access a bank account, get a loan, and handle most of their financial management. This is embedded finance: “the placing of a financial product in a nonfinancial customer experience, journey, or platform.” The organizations offering these solutions partner with banks to embed financial products seamlessly into their online platforms.
Embedded finance has emerged as a potential solution to the under-financing of small businesses. In this context, lending products can be integrated within solutions that small company owners already use to conduct their business, such as cloud accounting, payroll, e-commerce, and social media platforms. Crucially, these platforms hold small business transaction histories and digital footprints that can be used by partner banks to offer better lending terms and more affordable interest rates. These digital platforms are also widely trusted and used on a near-daily basis by small business owners, minimizing the barriers to adoption of new lending products embedded within them. For small business owners, the ability to manage multiple business functions within one platform is compelling.
Strive EU offers funding for embedded finance solutions.
Open-banking innovation, supported by EU regulatory mandates, such as PSD2, is helping to unlock latent demand for more integrated financial solutions across Europe. This is a rapidly growing fintech trend in several European countries, such as Germany, France, and the Nordics. Although embedded finance leaders are emerging, this is still a nascent space. We believe that there is ample scope for further innovation and advancement across the region, and that this could be pivotal in unlocking more affordable credit opportunities for small businesses.
If your organization is actively working on this topic and you have a creative solution that you’d like to develop, please do apply to our Innovation Fund. Innovations could include:
- Solutions that increase small business owners’ willingness to trial embedded finance offerings.
- Solutions that use alternative data sources or data processing techniques to extend credit or working capital to small businesses.
- New approaches to merchant advances or invoice financing.
- Many others — we welcome your ideas!
Please see our website to find more information and apply. Applications close on March 11, 2024.
