
The SME market is proving to be an extremely lucrative one. In fact, in 2018, SMEs in the UK had a combined annual turnover of £2 trillion, accounting for 52% of all private sector turnover, according to the FSB.
It is, therefore, no wonder that banks have set their sights on cornering the SME market. However, SMEs are very different from the large enterprises banks have historically dealt with, as they require a different approach.
Driven by banking experiences and offerings in our personal lives, SMEs have come to expect the same personal and digital approach from the world of business banking. However, banks are yet to take this into consideration and are currently failing to answer the demands of SMEs. So, where should banks start in order to attract SMEs?
Getting to know SMEs
While banks have typically lowered costs and up-weighted rebates to attract large corporates, these offerings don’t pack the same punch for SMEs. Instead of grouping businesses of all sizes together, banks must work to understand their SME customers’ business needs and offer a service that is tailored specifically to them. This is something many banks are yet to master, with Fraedom finding that just 12% of UK SMEs thought that banks their organisation had dealt with over the past year fully understood their needs as a business. This statistic is worrying, suggesting banks need to do a great deal more in order to fully grasp the needs of SMEs and learn to speak the same language.
This understanding of SMEs also extends to ways in which they want to interact with banks. Banks need to keep this in mind and offer preferred methods of communication if they are to really tap into this lucrative market.
A tailored approach
According to a Fraedom survey, 95% of commercial clients who bank digitally in their personal lives, expect to do so at work as well, which, given that 40% of SME financial transactions were completed online or via mobile, seems like a reasonable expectation.
Fraedom also found that as part of this digital approach, SMEs would most value real-time accessibility, access to online and mobile banking and online, fast turnaround specifically relating to problem rectification, credit applications, account balance and fee enquiries. However, banks are currently failing to offer these services with just 43% of SMEs claiming to have near real-time control over business spend. Fraedom’s research also revealed that almost a third of respondents feel they have very little visibility on a day-to-day basis, with 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’s 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. By 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 level of service and personalised experience we have become so used to in our personal lives. Banks must address this clear disparity between what SMEs need and what is being provided in order to give SMEs the tools needed to give them the real-time view of spending they require.
Finding a sustainable solution
If banks are to answer the demand from SMEs for a more consumer-focused, digital offering, they must begin to innovate. With the majority of banks lacking the technical know-how and understanding of SMEs to do this alone, it is likely we will begin to see more and more banks partnering with fintechs. Through these partnerships, 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.
A more personal, tech-enabled service tailored to SMEs will help banks to build lasting, more trust-based relationships with SME customers, while SMEs will experience greater business agility, streamlined efficiencies and increased visibility of expenditure.
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