Fast, nimble and digital: SMEs and why banks have to get up to speed
In the past few years, digitisation has revolutionised the way small and medium-sized enterprises do business. Parallel to this, what these businesses need from their financial-service providers has changed as well, marking a new chapter in SME banking. Yet despite impressive digital strategies and many new channels to keep up with these needs, many banks have yet to figure out how best to proceed.
Not so long ago, SME banking revolved around basic transactions and loans, with relationships typically forged through personal meetings at the bank.
Now, many SME customers use smart phones or a personal computer to interact with the bank, while at the same time SME banking has grown in complexity, with customers moving away from "plain vanilla" banking in favour of more bespoke and innovative solutions.
In the past few years, digitisation has had a profound impact on how SMEs do business. Mobile technology, in particular, is transforming the way they source, produce, market and sell their products. The pace of change is also accelerating, with mobile phones widely predicted to become the preferred consumer payment device within just a few years.
Not surprisingly, all of this has changed what SMEs need from their financial-service providers. With the branch no longer the fulcrum of relationships, banks must find a way to reconnect with SMEs in the digital space. Despite impressive digital strategies and the launch of multiple new channels, however, many banks have yet to figure out how best to do this.
The choice they face is stark - either find a new relevance for SMEs, or risk losing touch with an important group of customers as new competitors close in.
So what should banks do to adapt?
First, they should see digitisation as a great opportunity to reconnect with their SME customers. By investing time in understanding the digital agenda of SMEs, and developing a differentiated digital proposition, banks have the chance to recast themselves in a new role as digital partners to small businesses.
SMEs themselves have not changed. They are still on the constant lookout for ways to run their businesses faster, better and more cheaply. They still need banks to support them as they grow and expand. Digitisation merely offers a whole new set of options for achieving this and allowing customers to do their banking and to access critical information while they are on the move.
SMEs - perhaps more than any customer group - are embracing digital solutions at speed, with digital now widely predicted to become the main customer-relationship channel for such businesses in the next couple of years. To a large extent, this is being fuelled by the rapid advance of smart phones and tablets globally. In 2011, the sale of smart phones surpassed that of PCs for the first time. And by 2015, according to Gartner, a US-based information-technology research and advisory firm, tablets sold are expected to equal sales of PCs.
Driven by customer demand and the ongoing search for greater cost efficiency, many SMEs are embracing e-invoicing or mobile payment solutions to allow their customers to make purchases on the go. You only have to look at the fast adoption of mobile payments tools such as Square and iZettle to see that this is an area of priority for SMEs.
Banks should focus on developing a strong mobile banking proposition for businesses, allowing busy SME owners to manage their banking needs from a smart phone or tablet, so that they can concentrate on running their business. Virtual advisers can be useful, reinforcing the relationship aspect of banking, while empowering SME customers to self-serve and bring down costs.
Banks can also develop mobile and Internet services that would help SMEs tap into new revenue streams and markets, and also to access relevant information beyond traditional banking services. By extending their online platforms, for example, banks could help create virtual communities that allow SMEs to network or promote their products and find new customers or suppliers.
Such services would clearly add value to SME businesses and offer banks a point of differentiation at the same time.
Most important of all, while pursuing their digital strategies, banks should not lose sight of the basics. Like all other customers, SMEs expect a seamless banking experience. They want banking to be as simple, fast, cost-efficient and convenient as it can be.
For all the investment in new digital channels and solutions, banks should continue to focus on this fundamental need. This means fully integrating all channels. It means having a comprehensive and user-friendly website, and it means helping customers save time and money on basic tasks, such as opening a new account, applying for a company debit or credit card, or looking through past transactions.
Small and medium-sized enterprises are a core client group for banks, as they have always been. Prosperous economies depend on SMEs to drive growth and employment, and SMEs depend on long-term support from banks. Getting digital banking right for SMEs, and reinventing SME banking relationships for the digital age, should therefore be an urgent priority across the industry.
Tim Hinton is global head of SME Banking for Standard Chartered Bank