In Europe, 99% of registered firms are classed as an SME and 5.5 million are in the UK (Federation of Small Business 2016). Each and every one of those UK-registered organisations will require banking services to establish themselves, grow and survive. The sector has traditionally been served by the traditional ‘big four’ banks, with little competition or innovation.
While it appears new entrants have woken up to the profitability of the sector, it’s a market that has lacked the leadership ambition so prevalent now in retail banking, from high street incumbents to nimble fintechs. It seems SMEs are stuck in the haze between personal banker and large corporation, resulting in access to many products and services that don’t quite fit their needs.
I know banking
When taking the plunge to establish DWC Ltd, I felt confident, given my background, that banking would be the least of my worries as a new business owner having worked in banking for the past decade. However, I found myself switching bank accounts on three different occasions in an attempt to find a service that worked for me. With each new bank, I quickly found processes to be time-consuming and frustrating.
From opening an account to making payments, every time I had to contact the bank, it proved to be a significant distraction from where my time should have been spent: establishing my business and serving my customers. I found my flow interrupted by processes that made the simplest of things unnecessarily hard. Clunky processes built for larger corporations and then poorly adapted for smaller firms have resulted in badly designed and inefficient systems, such as one of the accounts I had requiring entirely different security data depending on whether I was using the app, online banking or telephone services. If any of these credentials were forgotten – gulp! – I was in for a 7-10-day wait before new credentials arrived by post … POST! Never mind that this was supposed to be a digital banking service.
The missing middle
While mainstream banks take the time to distinguish between the needs of personal and business customers, offering different services to each segment dependent on need, what they don’t seem to do well is recognise the ‘missing middle’. This is a segment that needs the flexibility of the personal market combined with the business support of corporate accounts. Simple issues such as being able to log in with a single password to access accounts, apps that enable rather than restrict, and technological (dare I say APIs?), routes for engaging experts on issues such as tax, forecasting and debt management would go a long way to helping time-poor SMEs.
It’s good to see the bank manager
For larger SMEs, I feel a closer understanding is required, which is where the relationship manager adds value. Done well and built on mutual trust and respect, this role should be at the forefront of identifying more complex needs while offering tailored advice. It’s where ‘added value’ services are introduced, from syndicated loans to alternative sources of finance for organisations constantly stuck in an overdraft. A visit to, or from, the ‘bank manager’ should be a rewarding experience.
A study carried out by the CMA and FCA in 2014 revealed that 75% of SMEs said they did not consider banks supportive of their business. These feelings stem from the individuality of the SME sector, meaning a one-size-fits-all approach from banks cannot and will not work. A new and flexible partnership approach to banking would enable SMEs to access resources they need on demand, while allowing them the freedom to make decisions about their own business. SMEs are not a homogenous group. Commercial banks need to offer services that deliver to a multitude of needs across customer types. As with personal banking life stages and topologies, shared values are evident in commercial banking:
- Convenient and accessible (multiple touchpoints, as and when needed).
- Expedient (from account opening to account servicing).
- Tailored to needs (solutions and advice from trusted experts).
- Efficient (complements internal processes such as accounting, payroll and taxation).
SMEs are time-poor, especially micro SMEs, and they require banking that enables them to choose how and when they interact – for some, face-to-face interaction is important, while others may simply need to use an app on demand. The SME customer needs to feel valued, which some banks have been able to do by visiting them at their own premises rather than asking the SME to go to them.
Forget branches. Who wants the hassle of parking, queuing and hoping that it’s still open when you arrive if you aren’t depositing a bag of coins, when a relationship manager can visit your premises instead? This ticks all the above boxes while also offering a chance for the bank to better understand and support the business.
SMEs and innovation in unity
Many of you will know already that I’ve recently engaged with Unity Trust Bank. Our paths first crossed last year when they contacted me at DWC Ltd. Together, we saw the opportunity for them to extend their value by offering commercial banking services to firms with a social conscience. Unity Trust Bank has an interesting differentiator: a ‘double bottom line’ strategy. This means they seek to generate a return for shareholders while making a positive impact to society through the loans provided to their business customers. They’ve already shown what they can do in the not-for-profit sector.
Unity Trust Bank became independent from the Co-op Bank in 2015 and have successfully transformed processes for the needs of the broader SME. By rewriting the service handbook and giving customers everything they need on tap, while still investing sensibly in transformation for the road ahead, opportunities for growth are inspiring. SMEs generate roughly half of all private sector turnover, so helping them to grow holds significant benefits to all of us in society.
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Photo by mavo, Shutterstock.com