If your looking for the next wave of innovation in small business banking and possible investment opportunities, then Nesta’s Open Up Challenge is probably a good place to start.

Nesta – the National Endowment for Science Technology and the Arts – was established in the UK in 1998, with a mandate to take risks and back innovations over the long term, specifically projects that tackle the big challenges of our time. By doing this outside of short-term government funding cycles or shifts in political fashion, the organisation believes it can facilitate real economic impact.

And what could be a bigger challenge than figuring out how fintech startups can help small businesses take advantage of the upcoming Open Banking directive that will come into force in January of next year in the UK?

Stage 1 of the Open Up Challenge launched in January of this year, with 20 fintech startups granted a £50k up-front development grant in July. A prize pool of £1m will be shared amongst Stage 1 winners in December.

So who’s in contention for Nesta’s big prize?

Big names like Tide and Iwoca are featured, while up and comers like Teller, an api for your bank account and Coconut, a bank for freelancers, are certainly ones to watch. You can see the full list of 20 here.

Where to next? In January 2018 Nesta will launch Stage 2, aimed at ‘Market Ready’ fintechs in the SME space. In this round, 5 startups will share in a sizeable grant pot of £500k, with a further £2m up for grabs.

With other countries dragging their feet on open data, now looks like an exciting time to consider expanding to the UK, and front running your next wave of your product development there. And with money on the table and access to the epicentre of fintech – London – what more reason do you need to book your flight?

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

zipMoney announced this week that one of Australia’s four largest banks, Westpac, has taken a $40 million equity stake in its listed point-of-sale consumer financing business.

The deal was struck at a 14.1 percent premium to last Friday’s closing price.

zipMoney has played its hand well in the SME space since launch, building a merchant base of over 4400 businesses. Over 300,000 customers have so far opted to finance their purchases through the platform, eschewing traditional credit cards, and the almost inevitable debt cycle that follows close behind.

Why is this deal significant?

It looks to be the largest ever direct investment by a local bank into a high-growth fintech venture. It signals the landscape is shifting, with banks developing an increasing appetite for fintech services that can be integrated into their existing platforms to either provide market differentiation or new revenue streams.

Who else is in this space?

The battle for bricks and mortar and online business payments is fierce, and Westpac’s tie-up with zipMoney could be seen by some as a defensive play.

In February of this year, startup bank Tyro announced its partnership with zipMoney’s closest competitor Afterpay.

Recently, Afterpay announced it had on-boarded over 6000 merchants, providing credit to over 840,000 customers. In July of this year, Afterpay completed a successful merger with payment technology company Touchcorp, forming Afterpay Touch Group. The market responded well, with the stock having made significant gains since.

Where to next?

The distribution power of Westpac’s bricks and mortar merchant network is significant and far outnumbers Tyro’s. The critical element will be how deeply the zipMoney payment experience can be integrated into existing payment workflows.

The other side of the coin – for both Afterpay and zipMoney – is how much merchants are willing to bear cost wise to close a sale. Typically point-of-sale financing companies front the payment for goods to the merchant, minus a discount. Any pricing tie up that allows for margin protection for the bank and the financing business is ideal. This could be through discounts elsewhere in the payments chain.

No doubt both banks will be looking at pricing models very carefully, to see how best to leverage these partnerships, and in what sectors.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

You can be sure the world as you know it is changing when a challenger bank is able to get of the ground with as little as $250,000.

The bank in question is Open, an Indian neobank who hit the news in mid July, announcing it would launch a mobile first banking platform to support India’s growing mobile orientated, micro-business community. Rather than acquire its own license, it appears Open will borrow a wholesale license from an approved Reserve Bank of India institution.

Backing the business are two executives from the Indian arm of global payments provider PayU; CEO, Amrish Rau and Managing Director, Jitendra Gupta.

India has had a longstanding tradition (in fintech years anyway) of encouraging innovation in its banking sector. The biggest legacy its regulators have created over the past few years would be its issuance of payments bank licences. These licences allow companies to offer basic banking services and accepted some capped deposits, but prohibits them from offering loans or credit cards.

They were originally conceived to increase access to basic banking services to small businesses, low-income households and India’s migrant labour force. Fino Payments Bank was the latest to acquire a payments banking licence, launching its operations in July. It joins other payment banks like Airtel, India Post and Paytm.

Paytm, who already service 200 million customers, only launched their banking arm in May of this year. With the new features, the company believes it can surpass 300 million customers within a few years. For Paytm’s mobile wallet customers, transitioning onto the banking platform makes logical sense, as money held in wallets will be able to accrue interest.

And the interest rates are relatively healthy – especially compared to the anaemic looking ones in western nations. Interest rates offered range between 4% and 7.25% per annum, while revenue streams are derived from ATM charges, online transfers and cash withdrawals.

Open’s immediate advantage will be its ability to offer a full suite of banking services – including credit. However the scale of the Paytm’s and Airtel’s of India will no doubt be difficult to match. And surely these businesses intend on offering credit services at some point. Still, India is a big country, and the opportunity is immense. Open is no doubt banking on the fact everyone can win enough of the banking pie to build a viable business.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

It may come as some surprise, but in Nigeria over 1000 Microfinance Bank licenses (MFBs) have been issued by the central bank to small finance institutions in less than 10 years.

The purpose of these institutions is to broaden access to finance to low-income earners and small, micro businesses. Similar initiatives are at play across other developing nations, with India being one of the more prominent and well-known countries to created tiered access to banking licenses.

And while basic access to credit and savings accounts are important on the consumer front, the flow on effects for underdeveloped countries when business financing is addressed are significant.

Research shows that while SMEs account for, on average 51 percent of GDP in high-income countries, for less developed nations this figure stands at a paltry 15.6 percent. This lag is an effective handbrake on pulling many of these nations out of poverty.

A big part of this differential is down to a lack of access to growth funding for SMEs and micro businesses. Currently the International Finance Corporation (IFC) has estimated a financing gap of US$2.1 – 2.6 trillion currently exists amongst developing nations. And while finding funding to meet this need is one challenge, the bigger piece of the puzzle is how to get it to those in need in fast, reliable and secure manner.

To address exactly this, the Nigerian Central Bank announced this week that plans are afoot to build a new core banking system specifically for the nations MFBs. With a branchless mentality from day one, the core banking system will dramatically lower delivery costs for MFBs, and allow them to further extend their reach into the under-banked markets they seek to service.

A new core banking system designed specifically for a new breed of bank is something developing nations, starting with little legacy infrastructure are well positioned to achieve. Similar new banking or new payments platforms in developed markets are far more difficult, requiring deep stakeholder engagements with powerful incumbent players – many of whom need to retrofit their own systems to be compatible.

It will certainly be interesting to see the speed at which Nigeria can deliver on this new infrastructure. But if it can, the rewards for the economy as a whole are immense.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

Since Amazon announced its intentions to launch into the Australian market in April, share prices for its most obvious and direct competitors have been in free-fall. Some commentators and analysts estimate around $4 billion in value has been wiped from some of Australia’s largest retailers and grocers.

And while many believe the Amazon ‘Armageddon’ fear gripping local investors is exaggerated, there is no question the global behemoth will force local businesses to up their game.

But Amazon, being Amazon, isn’t just about books and bananas. Amazon touches everything – including small business lending. And while the hysteria around Amazon’s imminent Australia arrival hasn’t enveloped the banking system yet, perhaps it should.

According to the Financial Times, Amazon’s small business financing arm, Amazon Lending, has originated around $3B worth of loans on its platform since it launched 6 years ago.

The company is now expanding in the UK, US and Japan. Why wouldn’t it make a crack for Australia, in what is currently a massively underserviced small business loans market?

Differentiated competition from fintech is also low. While global companies like Square have launched their payment facilities in the Australian market, there is no sign Square Capital is going to be available to merchants any time soon. PayPal’s working capital product has been the most well-known working capital solution on the market, originating just over $100M in loans, while Tyro’s working capital solution for bricks and mortar stores is in the early stages of it’s release.

That’s not to say fintech’s and the alternative lending sector haven’t made an impact over the past few years. Between 2015 and 2016 the share of business lending for the big four banks was estimated to have dropped 0.44 percentage points.

While the numbers are hard to pin down, some estimate the demand for small business lending market in Australia sits at around $150B per year. Demand outstrips supply, at $77B, a ‘prime’ opportunity for Amazon indeed.

With bank levies, a cooling property market and the spectre of a Royal Commission hanging over local Australian banks heads, the Amazon effect won’t be welcome. But the savvy investor should seriously consider this when thinking about where to park their hard earned cash. The good news is, small businesses can only win, whatever the outcome.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.

This week e-commerce payments platform Klarna announced it had secured a full banking licence from the Swedish Financial Supervisory Authority. This is a huge achievement, and will allow Klarna to deepen its hold on its existing customer base.

Why is this big news in small business banking terms?

Klarna currently has an installed base of 70,000 merchants and it has facilitated online purchases for 60 million customers across 18 markets.

As a merchant payments provider, it has primed its base to feel comfortable making non-bank initiated financial transactions across its network. This ‘trust bank’ will allow Klarna to easily move deeper into the banking value chain for SMEs, providing traditional bank accounts. By essentially ‘damming’ the river of payments each business receives it will gain access to a lower cost of funding for its credit products.

With its consumer credit options, Klarna already helps businesses reduce their working capital needs by pre-funding purchases to merchants immediately, however it’s not hard to imagine the business using its licence to develop richer and more sophisticated merchant cash-advance products. If these help the retailer grow or add new product lines, the Klarna business benefits as a result – a highly virtuous cycle.

What could this mean for consumers shopping with small businesses in the Klarna network?

Klarna has already been acting like a quasi-bank, by providing credit at the online point of sale. Extending this for use offline by Klarna merchants seems a logical next step. In Australia the likes of Afterpay and zipMoney are making forays into the ‘buy now pay later’ game in the bricks and mortar space, to complement their online offerings.

What else could be next?

One area that seems relatively untouched by fintech is the gift card space. In 2015 consumers spend $130 billion on gift cards, up from $118 billion in 2014. Some research bodies estimate as much as $1 billion in gift cards go unused each year. While this is money for jam for retailers, it’s not so great for consumers. Unsurprisingly a crop of startups have emerged in this space to try to address this problem, helping consumers trade gift cards online. Zeek and Raise are worth checking out.

Given Klarna operates a two sided market – consumers and retailers – it could potentially develop a novel solution that incorporates issuance and a post-issuance marketplace. It’s just another flavour of store credit.

It also seems like a Klarna digital currency could be a possible play. With its network of stores across global market places, making it easier to transact and manage forex would be a winner for consumers and merchants. And if they can do it for less within a closed system, compared to the forex charges merchants and consumers are stung with by credit card companies and remittance businesses, then there is a natural network effect that could be taken advantage of.

If buying Klarna dollars could get me better discounts on products within the network of merchants, then it’s the ultimate loyalty/dollar hybrid, that unlike store points, doesn’t lock me into a specific merchant. The loyalty game is definitely changing, and Klarna is well positioned to reinvent this through its banking offering.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business.