The key to serving the SME is to understand their plight. Despite accounting for 99% of all businesses in many countries around the world - in the UK alone, there are 5.4 million SMEs - they have been all but left out of the equation by banks. In this post, the aim is to break down the particular needs of this segment and suggest fitting solutions.
UNDERSTANDING THE SME: What makes SMEs different?
Just because you are an entrepreneur does not make you a money expert. Roughly 80% of SMEs fail, often as a result of bad money management and financial illiteracy, so banks by simply offering solutions to help organise and plan their finances would be addressing a huge issue.
In the same way that you or I have more than one bank account, no bank has all the information they require to see the SME’s bigger financial picture for the same reason. New technology and Open Banking will make it much easier for banks to know, and act on their more in-depth knowledge of their SME clients, as access to customer information becomes the norm. PSD2 legislation is the perfect inflection point for banks. Act now, or customers will move on.
Understanding is, or should be, firmly at the core of bank’s efforts, to ensure they are doing it right by all their customers going forward.
THE SME: PAIN POINTS
SME banking is the same as for you or me, just on a different scale. Whether for SMEs or individuals, the more information banks have, or anyone for that matter, the more opportunity there is for providing more relevant services. Banks no longer need to offer loans, mortgages, etc, but rather a solution to a problem. If you know your freelance or SME customer is need of new equipment for their business because they need an upgrade or have been spending on computer repairs, the wise move would be to suggest a deal on a computer or IT systems, rather than a simple loan. Perhaps a client is slow to pay them for their services and their cash flow will be affected. This is the tip of the iceberg, because banks are able to know their customers better than they know themselves and can help them out of complicated situations, with solutions rather than products.
For banks, at this stage of the proceedings, it may not seem as though they are many benefits to Open Banking, but the sky is quite literally the limit.
WHAT ARE THE BEST BANKING SOLUTIONS?
Why are banks worried about Open Banking anyway? For 2 main reasons: firstly, they now have to give open access to their customer data to third parties. So the flip side of having more information themselves, is that others will too, creating more competition than ever before in the sector.
Banks have one very important string to their bow in avoiding the effects of the internet giants lurking in the background. Banks are the known, trusted establishment that has always had to follow strict security regulations that non-banks won’t have to comply with. When it comes to money and security, there is a lot to be said for the level of implicit trust that banks offer their customers.
With all this knowledge, a partnership can be established with the SME client. Tools such as cash flow forecasting, invoicing, accounting, e-commerce options, customer insights and saving options are all possible with a better understanding of needs.
It’s important that banks realise that the more they ‘put in’, so to speak, the more they will ultimately get out. To become the customer’s bank of choice, or ‘everyday bank’, requires a commitment to not only abide by the rules, but offer added value. The rules say, come next year, that banks have to allow free access to data, and the minimum they are required to do is to open the floodgates and allow access. But what about capitalizing on the data they have? What about offering above and beyond what is set out by law?
Total digitisation, machine learning, analytics and Open APIs are delivering previously unimaginable opportunities to get closer to customers and re-invent what it means to be a bank.
How banks play the cards they have been dealt is their choice, but with an underserved segment, there is huge potential to rewrite the rules, build new products and create new value-added propositions for customers.