Banks and the SME: A Case Of One Size Fits All?

by Aoife Crean on Nov 16, 2018
Approximately 97% of SMEs are micro enterprises, meaning they have fewer than 10 employees, or are sole proprietors, and/or have an overall revenue of below €2m. Whilst they fall under the SME umbrella, their needs are anything but similar and banks are best advised to provide the service their unique set of circumstances require.

Hindsight has proven to banks that retail banking products and services do not cater sufficiently well to their SME customers; not only that in fact, as now it’s clear that not all subcategories of SMEs are one and the same.

Given their size and relatively low income, these companies are a prime target for banks looking to offer both financial, and even non-financial products and services. However, it stands to reason that these businesses are not looking for large-scale accounting systems, and it may be that aggregating all the 3rd-party services they need isn’t necessary in the same way that it is for larger enterprises. Thus far, efforts to create in-bank business service platforms haven’t culminated in great returns for the bank. So far.

Recent discussions with banks in and around Europe have shown that efforts made to offer one-stop-shop platforms haven’t achieved the traction many were hoping for, as there is still little by way of understanding exactly what the freelance, micro enterprise or seedling venture are looking for from their bank. This, despite offering tools at a considerable discount, and everything at the touch of a button. What gives?

Could they benefit more from less paperwork for larger bank loans, or is it less money but way less hassle that they’re after?

Do they even want a bank to offer them anything beyond what we already know and love them for?  Turns out that even offering services for free doesn’t do it for the smaller business, as free is synonymous with worthless in their eyes.

solving the disconnect

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Banking products are still a major source of finance for European SMEs but alternative financing options are growing at an increasingly rapid pace, with FinTechs offering digital lending services that bypass the red tape and numerous signatures, without the need for human interaction.   

Smaller SMEs that require less funding can go straight to alternative lenders and be done in half the time.

According to Accenture, in addition to the fact that banks are not clued up about the needs of the smaller business, SMEs are in the dark when it comes to what is on offer for them too.  We seem not to be speaking the same language, so what can be done about it?

Innovation is the only way forward for any kind of business in today’s fast-changing market.  Anyone not doing their bit to understand what to offer whom is on the back foot with little that can be done to remedy the situation.   A study into the specific touch-points used by this SME segment, made easy with the implementation of machine learning technology would go a long way to understanding their processes, how they carry out their business and where their needs lie.

It’s Not Where But What

In short: banks would do well to stop thinking about what to do on their own platforms and consider capitalizing on their private goldmine; their data, wherever the need might be.  Perhaps partnering with accounting or bookkeeping firms, offering insights and data where these businesses can use it would be a smart move.  Where are they and what do they do? If they’re not interested in a bank’s own service, what is it that ticks the boxes for them?

If SMEs won’t come to the bank, banks might need to meet them halfway.

Studies show that what works for one bank, won’t work for all banks in all places - Accenture in a recent survey of European SMEs discovered that where a Spanish entrepreneur looks to the bank when they need help, an Italian seems to prefer the ‘partnership’ approach to money management, updates and connections with the bank, as a trusted member of their business.


In The Know in November

We’ve dedicated the month of November to the SME segment with a view to proving just how Business Financial Management (BFM),  powered by Artificial Intelligence and Machine Learning technologies can help build the bridge between banks and businesses, large or small. 

Strands' Chief of Product Strategy, Luis Rodríguez mentioned on a recent panel at SME Finance Forum that: “The first and most important starting point of any AI application is a good segmentation strategy, then the definition of classification and prediction algorithms to provide a clear understanding of the past, where is the SME coming from and its context.”

Apart from several affirmations that AI and intelligent bots has reduced the workload by some 30% for relative newcomer companies such as Revolut, at the same event in Madrid, Leandro Guerra, Data Science Manager at Experian EMEA added that:

"Banks have the unique chance to become the go-to platform for SMEs, the provider for small and medium businesses that solve most of their needs." 

The message is positive and AI is the tool to make this banking utopia a real possibility.

In Barcelona, we formed part of the EFMA SME Banking Council, a private forum in which banks and financial institutions from around the world meet to share and exchange tips, know-how, successes and failures in the SME space.  The biggest international banks are united in their quest to offer better services to their corporate customers - the resounding question is how best to do it. 

And to round up the month in style, we spoke about our value-added Cash Flow Management platform at the Mastercard Commercial Payments Solutions Conference in Kuala Lumpur - home to one of Strands' international offices -  and presented our global joint strategy for SME customers.



Aoife Crean
Aoife Crean

Aoife Crean writes in her native English, Spanish and Catalan producing whitepapers, blog posts, news items and interviews relating to FinTech and trends in banking.

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