Why banks must get personal to answer the demand of SMEs

Kyle Ferguson, CEO, Fraedom

The evolution of banking in our personal lives, driven by technological advances, has fuelled a change in expectation among SMEs who are demanding the same experiences and offerings within the world of business banking. Thanks to the apps and platforms on offer from consumer banks, SMEs now want the same digital capabilities they get as personal customers with Fraedom finding that 95% of commercial clients who bank digitally in their personal lives, expect to do so at work as well.

Yet, despite this, the majority of banks are currently struggling to meet these demands and deliver the more personalised service and consumer-focused offering SMEs desire. But with a combined annual turnover of £2.0 trillion and accounting for 52% of all private sector turnover in the UK in 2018, SMEs are a highly lucrative market that banks can’t afford to ignore. So, how can banks meet the demands of SMEs?

Digital platforms

Just as in our personal lives, SMEs are now conducting more of their financial processes online with 40% of all SME financial transactions in 2017 completed online or via mobile. As a result of this and changing expectations, more than half of SMEs now want to move to an online/mobile banking business environment. These figures are only set to rise as younger, more digital-savvy employees ascend the ranks.

With this increase in demand for banks to provide digital platforms, it’s vital banks not only meet this need but also understand what SMEs want from these platforms. According to research from Fraedom, the digital services which SMEs value most include 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, as it stands, banks are failing in each of these areas.

Fraedom found that just 43% of SMEs currently have near real-time control over business spend, while a third feel they have very little visibility on a day-to-day basis. This lack of visibility is negatively impacting SMEs with nearly a quarter having to regularly spend significant time and money investigating who spent what. 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.

The need to go back and interrogate audit trails is a further drag on a business’ resources, efficiency and productivity. Banks must address these issues and develop the tools needed to give SMEs the real-time view of spending they require.

Communication is key

According to Fraedom, just 12% of UK SMEs thought that banks their organisation had dealt with over the past year fully understood their needs as a business. It is therefore vital that banks work to understand the needs of SMEs and also learn to speak the same language.

This understanding of SMEs also extends to ways in which they want to interact with banks. For instance, the 2018 FIS Performance Against Customer Expectations (PACE) found that almost half of UK SMEs prefer to contact their bank through digital methods. Banks need to keep this in mind and offer these methods of communication if they are to really tap into this lucrative market.

Finding a solution

As the need for personalisation and digital platforms among SMEs grows, banks must begin to innovate with working with fintechs proving to be the most effective way of doing so. Through partnerships with fintechs, banks will be able to not only implement the right technology but also get a better understanding of their SME client-base. Fintechs will help banks to better 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.

By developing a more personal, tech-enabled service tailored to SMEs, banks will be able to build lasting, more trust-based relationships with SME customers, while SMEs will benefit from greater business agility, streamlined efficiencies and increased visibility of expenditure.