SME pain points: too much time spent on financial administration
A 2019 survey by McKinsey (Beyond banking: How banks can use ecosystems to win in the SME market) pointed out that SMEs spend a significant time on non-core business activities. SMEs’ pain points are related to financial administration and time spent on financial administration/financing.
Financial administration’s huge part is related to invoice management, accounting, and banking. These activities all use invoice data: if invoice data is available and can be managed digitally, then 60-80% savings can be reached compared to paper-based invoice management.
Regulatory changes: decreasing VAT gap and shift from offline to online invoicing
In parallel to the rise of online invoicing solutions for SMEs, tax authorities are trying to close the VAT gap by introducing e-invoicing clearance models, where tax authorities get hold of real-time invoice data. This has happened in Hungary in 3 stages:
- In July 2018, B2B invoices with a VAT threshold of ca EUR 280 had to be submitted in real-time
- Since July 2020, all domestic B2B invoices have to be reported to the Hungarian tax authorities
- From 1 January (with a non-sanctioned period until March 31) invoices issued to individuals also need to be reported.
The change can be detected in numbers: while in December 2020 the average number of invoices submitted to the Hungarian Tax Authority was 1 million on a weekday, in January 2021 it doubled to an average of 2 million invoices per day.
This change in the regulatory environment brought about significant changes in the daily life of SME companies. The penetration of online invoicing solutions in SME companies increased significantly from a ca. 8% penetration in December 2017 (https://enet.hu/hirek/felkeszultek-a-kkv-k-az-online-szamlazasra/).
Currently the dominant market player szamlazz.hu claims to have 436 thousand registered users, while billingo.hu published a user number of 100k users in November 2020 out of the 1.8 million registered economic entities (companies and sole entrepreneurs altogether). In addition to market solutions, the Hungarian Tax Authority launched its free online invoicing solution to provide a free solution to enable compliance with real-time data submission obligations.
These online invoicing solutions enable an export-import functionality for the most popular accounting software formats in Hungary, so invoice data can be uploaded. In certain cases, API connections are also available for data exchange.
Banks shaping the competitive landscape
Banks are becoming also active in the online invoicing market: OTP eBIZ, an OTP Group subsidiary was launched in 2017, Takarekbank’s Takarek Business Assistant was launched in May 2020, while Budapest Bank group’s Budapest Financial Assistant (BUPA) was introduced to the market in September 2020, and reached more than 7000+ registered businesses within the first 5 months of operation. OTP eBIZ and BUPA integrate invoice management and banking, which means that SMEs can manage both their customer and supplier invoices together with daily banking. The inevitable advantage of these solutions is that the enterprise has a real-time overview of the status of their payables and receivables, without the need to call their accountant because they can check the payment status of each invoice.
Another huge add-on is the convenient payment experience of supplier invoices: in BUPA and OTP eBIZ invoices coming from these systems can be paid with one click, without the need to enter invoice data. OTP eBIZ with its 24k registered SMEs generated ca EUR 260 mn transaction volume, with a monthly volume of EUR 12-14 million.
All 3 solutions provide a dashboard for SMEs that are very helpful for daily financial management and having real-time and readily available financial information saves a lot of time.
The availability of the different features of the digital financial assistants provided by the 3 banks are listed below:
BUPA has pioneered in having both an AISP and PISP license (as one of the first open-banking platforms in Hungary): it uses Budapest Bank’s PSD2 APIs for its services and will connect to more banks this year. As OTP eBIZ was launched before open banking came into force, it is directly connected to OTP Bank’s payment system.
Other banks, such as Raiffeisen Bank, Erste Bank, and K&H Bank have third-party marketing partnerships with szamlazz.hu and Billingo. K&H bank published that approximately 2.7 thousand K&H customers have synchronized their bank accounts with the service connecting online invoicing and online banking.
New era – going fully digital
With the introduction of the latest changes in tax regulation effective from 1 January, enterprises are pushed towards digital invoice management.
- Enterprises will have access to their supplier invoice data and can use this for invoice administration and accounting purposes.
- In certain cases, invoice data submitted to the tax authority can be treated as a legally compliant e-invoice.
- The tax authority will accept the electronically stored invoice data as an invoice archive.
These new features are enabling enterprises to shift completely from paper-based to digital invoice management: as supplier invoice data will be available in a standardized format on the whole market, it contributes to a more efficient supplier invoice data management. As the primary purpose of the tax authority was to decrease the VAT gap, therefore in certain cases the invoice data submitted needs to be completed with additional data for order matching, or specific item information. However, currently available data will inevitably help all companies – large and small – manage their invoice data digitally, which is extremely useful during the pandemic.
Accounting software providers have already made this feature available to their customers, and banking solutions will also integrate it into their own solutions for supplier invoice management and payment.
What can we learn from the case of Hungary?
Regulatory push has market-shaping strength, and even if the main purpose was to decrease the VAT gap, it made life for SME companies much easier ensuring de-facto e-invoicing interoperability. Market solutions will compete in ease of use and convenience for their specific market segments, providing value-added services on top of invoice management. Integrating several solutions and providing a seamless user experience in small business financial administration and building an open ecosystem around financial data – invoicing, banking, accounting, and tax data – is where we are heading. Data is available, it will be no longer a competitive advantage – whoever understands and responds to customer needs best, will be winning.
Additionally on the topic:
Watch the presentation on the topic of e-invoicing and payment ecosystem in Hungary by Katalin Kauzli (Charlie-India, Hungary), Norbert Szenttamási (Budapest Bank, Hungary) and Gergely Tyukodi (OTP eBIZ, Hungary), recorded during the CEE20 SME Banking Club Conference on November 25.