Rupa Ramamurthy, Vice President for Corporate Banking & Banking Business Services at Intelenet Global Services®, explains how corporate banks can regain favour with SMEs.
The open banking era has begun, and it is having a major impact on small and medium-sized enterprises (SMEs), opening new ways for them to connect with innovative FinTech services and digital challenger banks. Despite being the lifeblood of the UK economy, contributing more than £200bn a year, SMEs often feel under-served by banks. While this is good news for competitors, traditional banks are facing a tough battle to win the confidence of small business owners back.
According to recent research, over half of SMEs are willing to look elsewhere for financial services if they don’t get the services they require. Tellingly, the proportion of business owners who say they have a good relationship with their bank decreases along with the size of the business. 70% of microbusinesses say they have a bad relationship with their bank, indicating that the smaller the business, the weaker the relationship with the bank.
However, the situation is not irreparable – even in the age of Open Banking. The SME market still represents a huge growth opportunity for UK banks. The SME market employs nearly 60% of private sector workers and generates a sector turn-over that is nearly identical to the UK’s 6,000 large businesses. In order to re-engage SMEs, corporate banks need to adjust how they target SMEs to gain an edge over FinTechs and digital first challenger banks.
The reality is that the main request small and medium-sized enterprises have for banks is the provision of financial planning tools and business growth advice. They are often especially in need of money management and cash flow tools, according to research endorsed by the SME Finance Forum. As long as banks approach SMEs differently to their larger business clients, they have a real opportunity to become vital support for small business owners.
Unlike large corporations, many SMEs are held back by their size when it comes to efficiently undertaking certain financial and administrative activities in-house, such as payroll, payments to suppliers, and import-export paperwork. SMEs face significant pressure to run their business as well as dealing with their banking needs, and unfortunately, feel that banks are often not equipped to help them properly and at the speed they need. This is why banks need to position themselves as strategic advisors, maintaining the ‘relationship’ element of relationship banking and empowering SMEs with the tools and expertise they need in order to be self-sufficient.
Improving digital services, which in turn bolsters the customer experience, will serve as a way to strengthen and expand client relationships, as well as driving cross-sell. It’s important for banks to remember that business owners have a finite amount of time to spend working on administrative tasks, due to pressing business needs which need to be addressed. Having a bank that acts as a strategic advisor can be the defining factor as to whether an SME simply survives or thrives.
To harness the opportunity that small firms offer, banks must ensure the delivery of sustainable innovation that helps businesses deliver on their ambitions. Traditional institutions must first realise that they are well-placed to take advantage of the new demand for products and services from SMEs, despite the increasing popularity of the FinTechs and digital challengers.
Ultimately, a proactive response is required from banks if they are to retain market share amongst the small business banking market. Their willingness to embrace the needs of small firms is key, with models shifting from ‘product-push’ to those based around advice. Innovation is the key to executing customer-centricity through new products, services and channels. A new relationship can be established between banks and businesses if this is done right, based on expert advice and the desire to nurture and promote the SME customer.