Four Questions to the Future Dynamics of Financing the German SME Market

Increasing regulation, an oppressive macroeconomic environment and nondigital, cost-intensive processes are forcing incumbent banks to adapt their offers on the German smaller and medium-sized businesses (SMEs) market. The paradox is that banks can only cover a specific area of the lending sector in which margins are low and risk-adjusted prices cannot be applied due to strong competition. From the customers’ perspective, banks do not meet their demands. As SMEs find themselves in a costly transformation to automated, digital business models, they are compelled to approach alternative lenders. In turn, lean, digital neo-banks and Fintechs are intensifying their efforts to serve German businesses with financing by using their technological and strategic potential. The overall aim of the article is to understand the future dynamics of German SME lending. A multiple-case approach uses rich data from in-depth expert interviews combines recent data from academic and industry sources. The outcome furnishes the basis for holistic, well-grounded advice on adapting banks’ business model to the changing market and overcomes relevant customer problems. By applying these results incumbent institutions can reinvent their business models through manifesting themselves as innovation leaders to stay relevant, protect their core market and increase their yield