By Kyle Ferguson, CEO, Fraedom
Innovations in technology have transformed the way we bank in our personal lives. Now, as long as we have a Wi-Fi connection and a mobile phone, tablet or laptop to hand, we are able to check our balances, make payments and transfer money anywhere at any time. No longer do we have to wait for a letter to arrive at the end of each month in order to gain visibility of our accounts. As a result, this has completely changed the way the majority of individuals in the UK bank, with 69% of Brits regularly using online banking in 2018.
This evolution of retail banking has fuelled a change in expectation among SMEs who are now demanding a better digital approach. However, banks are currently struggling to meet these demands and deliver the more personalised service and consumer-focused offering the majority of SMEs desire. In fact, the current offering from most commercial banks fail to take the needs and desires of SMEs into account, failing to offer the same visibility and control of accounts and are still more geared to their traditional target – large enterprises. That said, as SMEs have proven themselves to be a lucrative market, they are now set firmly in the sights of banks as their latest target sector. It’s little wonder this is the case when you consider that according to the Federation of Small Businesses (FSB), SMEs have a combined annual turnover of £2.0 trillion and account for 52% of all private sector turnover in the UK in 2018. It is, therefore, clear that banks can’t afford to ignore the SME market, but aren’t yet able to deliver the service and products these businesses require.
With over half of SMEs now wanting to move to an online/mobile banking business environment, commercial banks must take these changing expectations and demands into account and learn from the experiences and offerings provided by retail banks. In order to do this, banks must focus on three key areas:
Gaining a better understanding
Currently, banks are far more geared towards big businesses than they are SMEs. While lowering costs and up-weighting rebates might work for large corporates, they don’t pack the same punch for SMEs. However, banks are yet to gain the insights and understanding of these customers to be able to give them what they want, as echoed by just 12% of UK SMEs thought banks that their organisation had dealt with over the past year fully understood their needs as a business. Similarly, over half of SMEs in the UK and USfind it difficult to attract financing from banks. This could be due to the fact that many banks enforce the same application and underwriting process for all loans, irrespective of size or complexity. Therefore, the transaction cost to process a £2 million loan is the same as a loan of £100,000.
These are worrying figures and point to something of a breakdown in the engagement process between banks and SMEs. If the economy in both countries is to thrive in the future it is important that banks are engaging with SMEs and are perceived to be doing so. SMEs should be seeing banks as an enabler of agility rather than a potential stumbling block. It also suggests that banks are still tailored more closely to the needs of larger enterprises and as a result are inadvertently making it more difficult for SMEs to access to funding. Banks must, therefore, work to understand the needs and drivers of SMEs and how these differ from larger enterprises, as well as making applying for funding more accessible.
It is vital that this understanding of SMEs also extends to ways in which they want to interact with banks. For instance, the 2018 FIS Performance Against Customer Expectations (PACE) found that almost half of UK SMEs prefer to contact their bank through digital methods via a tablet or mobile, for example. Banks need to keep this in mind and offer these preferred methods of communication if they are to really tap intothis lucrative market.
Providing digital platforms
SMEs now want the same digital capabilities they get as personal customers with 95% of commercial clients who bank digitally in their personal lives, expecting to do so at work as well. While 40% of all SME financial transactions in 2017 were completed online or via mobile. As such, banks must begin to offer these digital platforms and provide the digital services thatSMEs value the most, such as real-time accessibility, access to online and mobile banking, fast turnaround specifically relating to problem rectification, credit applications, account balance and fee enquiries.
However, banks are currently failing in these areas, with visibility and control of spend found to be major pain points for SME customers as under half of SMEs claim to have near real-time control over business spend. Almost a third of respondents feel they have very little visibility on a day-to-day basis and nearly a quarter confessing to having to regularly spend significant time and money investigating who spent what. Furthermore, over half of UK respondents said that on average they were personally spending more than two hours a week on expense or financial management tasks. This need to regularly go back and interrogate audit trails can be a further drag on a business’ resources, efficiency and productivity.
In our personal lives, we now have seamless mobile transactions, highly responsive customer service and fast transaction times. Yet, although personal bank statements typically update in real time and can be viewed on a mobile device, reconciliation of work-based expenditures can take days, if not weeks to process. Procurement generates reams of paper invoices and purchasing orders. In contrast, personal mobile wallets pay,log receipts and reconcile on bank statements in the blink of an eye. It is therefore unsurprising that SMEs are left frustrated by the lack of innovation offered by banks and are demanding banks provide the same tools, level of service and personalised experience we have become so used to in our personal lives.
Offering a personal service
Ultimately, banks need to offer SMEs more than just funding. They must also provide added value by answering the demand of SMEs for a morepersonal service and for a better digital approach. This will require a better understanding of these customers and a great deal of innovation to bring services in line with what SME customers are used to in their personal lives. Ultimately, the most effective way of doing this will be for banks to work with fintechs. Through fintechs, banks will be better able to understand the consumerisation of business processes and technologies; the eagerness of SMEs to adopt these to achieve enhanced agility; and the frustration they feel if they sense that banks are effectively not speaking their language.
With challenger banks looming in the background with more personal and technological offerings that are ripe for SMEs, commercial banks can’t afford to stand still and must begin to innovate or risk losing out on this lucrative market. This more personal, tech-enabled service tailored to SMEs, will allow banks to build lasting, more trust-based relationships with SME customers, while SMEs will benefit from greater business agility, streamlined efficiencies and increased visibility of expenditure.