Why local execution — not product — is becoming the real edge in SME digital banking
- Daniela Fonnegra
- 6 days ago
- 4 min read
Our latest podcast features our Co-founder, Richard Bostock, in conversation with Bruno Reggiani, Co-founder of Tot.
This is not a conversation about product innovation.
It is about where competitive advantage in SME banking is actually shifting.
In SME banking, competitive advantage is no longer defined by what you build — but by where and how you build it.
Italy is a clear example of this shift — where structural constraints define what a digital bank can realistically become.
The illusion of a single European market
For a long time, digital banking strategies were built on a simple premise: Europe would gradually converge into a unified market. Build a strong product, scale it efficiently, and expansion becomes a matter of execution.
That logic is now under pressure.
Markets like Italy reveal how incomplete that assumption was. The challenge is not demand — SMEs behave similarly across countries — but everything surrounding them. Regulatory frameworks, compliance expectations, and even basic economic conditions vary significantly.
In practice, this creates a fundamentally different expansion reality:
Regulatory intensity is not evenly distributed across markets
Lending economics can be structurally constrained (e.g. interest rate caps)
Compliance requirements shape product design from the ground up
What once looked like fragmentation is now becoming a defining structural layer.
Expansion is no longer just about entering a market.
It is about revalidating your entire model within it.
The shift is clear: advantage is moving from product execution to structural control
The real complexity sits outside the customer
One of the most important clarifications in the conversation is critical but often overlooked: the SME is not the problem. Italian SMEs are not fundamentally different from French or Spanish ones in how they operate or what they need.
The complexity sits elsewhere.
It sits in the layers that surround them — bureaucracy, compliance expectations, legal frameworks, and operational processes that vary significantly across countries. These layers shape how a banking product must be designed, delivered, and scaled.
This shifts the centre of gravity in digital banking strategy. The challenge is no longer to simplify the product for the user. It is to absorb the complexity of the system behind the product.
And that changes everything.
Because scaling is no longer about replicating a successful model. It becomes about rebuilding it market by market, in alignment with local constraints.
A different starting point for monetisation
One of the clearest differences in Tot’s approach is how revenue is treated — not as an optimisation layer, but as a foundational decision.
Built in a post-2020 environment, the assumptions are different:
No free plans as a default acquisition strategy
Revenue generation from the first customer interaction
Diversification across multiple income streams
More importantly, the model is designed so that revenue is largely tied to customer activity, not just subscription fees.
This leads to a different set of priorities:
Customer quality over customer volume
Active usage over passive accounts
Early unit economics over long-term monetisation bets
The underlying shift is subtle but significant.
The question is no longer how fast you can grow.
It is whether your growth is economically sustainable from the outset.
Monetisation is no longer a phase.
It is the architecture.
Credit remains the structural gap
Despite progress in digital banking, SME lending remains one of the least disrupted areas.
SME credit remains largely dominated by traditional banks. Not because challengers lack ambition, but because lending is fundamentally different from payments or account management. It requires risk infrastructure, regulatory depth, and economic models that are harder to scale — especially in constrained markets like Italy.
Tot’s approach is pragmatic.
Rather than trying to own lending outright, they focus on owning the customer layer:
They control payments, invoices, and financial flows.
They embed credit through partners.
And they position themselves at the centre of the user experience.
This is not a limitation. It is a deliberate positioning.
Because in this model, the advantage does not come from owning the balance sheet —
it comes from controlling where and how financial decisions are made.
A shift happening beneath the surface
Looking forward, the most interesting part is not what is already visible — but what is starting to emerge.
Many of today’s challenger banks are no longer early-stage disruptors. They carry years of infrastructure decisions, data structures, and operational layers built under very different conditions.
That creates a new dynamic.
New entrants are no longer competing only on experience or pricing.
They have the opportunity to compete on how the bank is fundamentally built.
Particularly with AI, this opens a different path:
Not adding AI as a feature
But designing operations, cost structures, and decision-making around it from day one
If this shift holds, the next divide will not be incumbents vs challengers.
But something deeper:
Legacy architectures vs AI-native institution
Final thought
Across every layer — regulation, monetisation, credit, infrastructure — the same pattern appears:
The constraint is becoming the strategy.
The institutions that succeed will not necessarily be the ones that move fastest.
They will be the ones that:
Align with regulatory reality rather than work around it
Build economic models that hold from the beginning
Position themselves where value actually flows
And adapt their structure to the markets they enter
In SME banking, that alignment is no longer optional.
It is what determines whether growth compounds, or quietly breaks under its own assumptions.
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