Three steps for banks to strengthen relationships with their SME customers

by Russell Bennett, Chief Technology Officer, Fraedom

According to our latest research, SMEs feel their needs are currently not understood by banks, with many saying they feel banks don’t provide the fair and transparent pricing they require. Instead, there is a strong sentiment that banks tend to put the needs of large enterprises ahead of SMEs. This is in spite of the fact that the Federation of Small Businesses (FSB) found that small businesses accounted for 99.3% of all private sector businesses at the start of 2017 and 99.9% were small or medium-sized (SMEs). However, despite making up such a significant proportion of UK businesses, many SMEs are struggling to attract financing from banks. In fact, according to our latest survey of decision-makers within SMEs, 52% of UK SMEs are not finding it easy to access the funding they need from banks.

The desired ‘consumer-focused’ approach is not being delivered to SME customers, instead, large enterprises are taking priorities. SMEs present mass growth opportunities for commercial banks. However, to really untap this potential and gain trust and creditability with small and medium-sized businesses, banks must begin to adapt their offering specifically for the SME marketplace to complement existing real-time spend programmes. Fortunately, there are a number of ways in which they can do this.

Simplify the lending processes

One of the biggest frustrations, besides being denied funding, is the time it can take to receive funding from banks. This is a key area that banks must address if they are to improve their relationships with SMEs.

Commercial cards are one lending stream that could enable banks to offer their SME customers a better service. Driven by a mix of new product offerings and changing business expectations, the commercial cards market has undergone significant transformations in recent years, and as such, commercial card use has increased dramatically. In fact, of the banks featured in our latest survey, all reported major expansion in their commercial card portfolios, with many seeing double-digit growth every year. Commercial cards often provide small businesses with increased flexibility and access to funds for business purchases big and small, so by expanding their existing card portfolio and developing new product and service lines, banks will strengthen their relationships with their corporate and business customers.

In our personal lives, we are so used to being able to access simple online applications and receive almost instant decisions on funding and this is something we are now also demanding in our professional lives. Banks must begin to create simple lending processes which allow SMEs to get faster funding decisions, quick access to these funds and straightforward terms.

Provide more digital platforms

SME clients now expect commercial banks to offer the same easy online access and immediacy they enjoy from their personal banking services. As a priority, banks should provide more digital platforms to meet this demand. This is an area in which banks would benefit from working with fintechs who are able to provide technology to streamline financial management processes within SMEs and drive agility.

Banks can improve their offering of digital platforms through the adoption of virtual cards. In recent years, we have seen increased uptake of virtual cards among small businesses as organisations look to them to improve business processes and exert tighter control over payments, and research shows some businesses have doubled or even tripled their virtual card spend. 

For SMEs, virtual cards offer flexibility that makes payments more secure, controlled and easy to reconcile. With the help of fintechs, it is also possible to create unlimited digital cards that only exist for single transactions. This means businesses can assign these to employees on a case by case basis, allowing them to quickly make the transactions they need to carry out their job efficiently. Virtual cards offer SMEs several benefits, such as reducing credit exposure by limiting the number of plastic cards issued to employees and significantly reducing erroneous expenditure and back-end expense management.

Implementing this technology also allows banks to answer the increasing demand of businesses to have access to the same kinds of modern payment experiences in their business life that they enjoy in their lives as consumers.

Fintech partners play a key role in working with banks to improve their help streamline the often bureaucratic and time-consuming spend management process within SMEs. Through the supply and delivery of innovative commercial card technology, such as virtual cards, fintechs will help SMEs achieve greater insight into their spending and exert tighter control over it. By working with fintechs and embracing the latest technologies, commercial banks will not only improve the experience of their SME customers but will also be able to leverage the technologies to gain an advantage over competitors.

Develop SME specific programmes

Banks must consider what SMEs are looking for, what will help them in the day to day running of their business and what they can do to help SMEs achieve their potential. One of the most effective outcomes is likely to be developing spending programmes and tools with SMEs in mind.

For instance, banks can help businesses gain greater control and visibility over expenditure by introducing Expense Management Systems tools which help create a single financial view. For small businesses, it is vital they have full transparency and control of their spending so by facilitating this, banks would be able to strengthen their offering to these customers. Offering easy access to online statement and reporting tools will also allow SMEs to make smarter business decisions.

With SMEs playing such an important role in society and on the economy, it is vital that banks make strengthening their relationships a priority. As businesses demand a ‘consumer-focused’ approach, partnering with fintechs may be the best way for banks to achieve this thanks to their ability to improve a bank’s offering and provide innovative technology.

Finally, as growth is often a key objective for smaller businesses, by following these steps banks will be better placed to help them achieve this. In turn, by expanding their offering of commercial cards and digital platforms, banks will also fuel growth for themselves and improve their standing within a competitive market.