Tearsheet’s Challengers Conference brought together Strands’ Erik Brieva and HSBC Kinetic’s Erdi A. Karaca for an insightful chat on the current challenges and opportunities of SME banking.
The needs of small and medium enterprises are constantly evolving. Financial technology is creating growth opportunities all over the world, and with new fintech regulations coming into force –such as PSD2 in Europe–, leveraging it has become a priority for the banking sector. Each of these aspects has led to big changes in the SME banking industry.
At Tearsheet’s Challengers Conference 2020, Erdi A. Karaca, HSBC Kinetic’s Head of Banking and Beyond Banking, and Erik Brieva, Strands’ CEO, had the chance to discuss how to use financial data to help banking customers make better decisions. Here are some highlights of their conversation, hosted by Tearsheet’s Founder and Managing Editor Zack Miller.
Answers have been edited for length and clarity. Watch the video below to listen to the full conversation.
Can you talk about the evolution of the SME customer journey?
Erdi A. Karaca: It’s important to remember that the small and medium sized businesses are run by individuals just like yourself and myself, who, just like ourselves, have access to Amazon, Apple, and lots of other sophisticated technology platforms, which is inevitably raising their expectations in terms of the digital experience they have as customers.
Challenger banks have shown business-banking customers that great experiences could be built. This has forced banks to look into some of the fundamental journeys and improve them, taking them to a next level of sophistication.
Customers’ needs are quite simple. They want simple-to-consume information. They want flawless journeys, easy access to money, and easy transactional banking. And beyond all of this, just like how Amazon knows when their Fairy tablets will run out, they want their bank to know when they are going to run out of money. Our job at Kinetic is continuously thinking from the lens of the customer and figuring out how we can actually serve our customers better digitally.
What is the nature of Strands’ work and your relationship with HSBC?
Erik Brieva: At Strands, our goal is to serve financial institutions to help them reach their SME banking customers. The small and medium enterprises are being underserved not only by their banks, but by lots of other solutions that make it very complex to switch between different bank accounts and manage their finances. What Strands’ BFM delivers is a holistic banking experience for small and medium sized businesses, an all-in-one banking platform to help them manage their finances in an affordable and efficient way.
By partnering with banks like HSBC, we have come up with solutions like Kinetic, so we can put in the hands of SMEs the best tools to manage their finances properly, to access multiple bank accounts, to pay and analyze invoices, to create orders and to handle everything they need to manage their business properly. This is all powered by machine learning and artificial intelligence, so customers can be automatically alerted with the recommendations that HSBC Kinetic is offering to them.
What are proactive banking solutions and why should banks invest them?
Erdi A. Karaca: Traditional banking is very reactive. We need to spend time trying to really understand our customers and act more proactively towards their needs so that we can inform them on time, rather than trying to serve them when it is already too late. It is about finding the right balance but I am definitely seeing a shift towards a more proactive banking.
In my opinion, I don’t think there is a more natural place than a bank to offer proactive solutions. Today we know that 70% of SMEs rely on very manual ways of managing their finances –and when I say manual I am talking about Excel sheets. We know that they also rely on their accountants, who they need to pay 70 or 80 quid per hour, or they have to ask their accounting provider or aggregator to get insights about their own money, and they have to pay for it. Naturally, as a bank, we hold a lot of data on the customer. We know all their incoming and outgoing transactions. But beyond this, we have some strong partnerships enabled by Strands that allow us to bring external, accounting data into Kinetic. So, is there a better place than a bank to reconcile this data together and provide proactive insights to the customers so they can actually understand their finances better in real time?
In partnership with Strands we have built a top-notch categorization engine within HSBC that is aligned to the UK’s tax office. This engine allows us to save 5 days that a business would otherwise spend trying to understand which category every transaction belongs to. We have built a solution which provides the customer with a clear breakdown of how and where they spend their money. A Kinetic customer today could go into their app and they would know if their travel expenses this month are higher or lower than the previous month. We have provided a lot of clear KPIs that we believe are quite helpful to the customer. And then we have started providing cash flow solutions to our customers, through which we are able to tell them their past and present position, and we are currently working on providing them long term, future projection as well, so we can help the customer as early as possible.
By using data effectively, we have built personalized insights for customers. The smart engine that we have built with Strands will understand all the bills that I have in the next few weeks, and it will tell me whether I am likely to hit zero or going into overdraft. It can actually give me a heads up so I can take relevant action. It is all about understanding the customers and serving them at the right time, seamlessly.
More and more financial software companies are moving into banking. Do you think these new entities will be competitive?
Erik Brieva: This is a very interesting topic, but it is one that we have already seen before. We have seen other companies like big retailers, Amazon, Apple moving into the financial space. And banks are still here, and still being competitive. That is the motto of Strands: We are partnering with financial institutions to help them remain competitive, to help them provide a better user experience and to continue leading the banking industry.
Some of these new entrants have complex software, but what we are doing at Strands is simplifying all of that. We are putting in the hands of SME owners the tools that they really need, in a way that is easily embedded into the digital banking app that they have in their pocket everyday. So we presume that by empowering banks through tools like BFM, banks are really going to remain in a leadership position.
Do you see banks using tools like Strands’ expanding to areas that they wouldn’t normally serve?
Erik Brieva: Yes, absolutely. It goes two ways. Banking customers are asking their banks to provide them with better customer experience. And banks are being aware that they have a responsibility to remain competitive and to offer the best solutions to their customers.
What is your vision for supporting SMEs into the future?
Erdi A. Karaca: This is an ever-changing segment, the needs are ever-changing, and obviously so is the world. So I guess that adaptability is a must. Are you able to manage the expectations of the customer but also deliver for those needs? Ultimately, our vision at HSBC is we don’t want to be a bank that just holds the customers’ money, we want to be a trusted financial advisor for our customers. And we want to future proof their businesses by telling them today what will happen tomorrow. Our vision will focus on having a very clear strategy: Having a clear vision powered by data where we use intelligence to actually help customers, rather than assumptions.
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