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Small and medium-sized enterprises are the backbone of any economy; they inspire innovation, create jobs and fuel economic prosperity. According to the World Bank, SMEs represent about 90% of businesses and more than 50% of employment worldwide. But the coronavirus pandemic has severely impacted small businesses all over the world posing a serious threat to their existence.
There are various factors that have contributed to this downturn, including lockdowns imposed by governments, reduced consumer spending and increasing prices of commodities. While some businesses have managed to stay afloat, limited access to credit has caused many small businesses to fear insolvency in the coming months. During this time of turmoil, SMEs look to their banks for advice and support. How can banks better understand the challenges SMEs are facing during one of the biggest economic shocks in history and help them overcome their financial challenges? Some of the solutions might seem obvious, but it is imperative banks take a closer look at their relationships with SMEs.
Over the years, a lack of trust has only grown wider between SMEs and their banks, primarily because SMEs believe that their banks don’t understand their needs. As cash reserves started to run low during the pandemic, small and medium-sized businesses turned to their banks to deliver the lending support their governments promised. While in many cases there is credit available in the market, SMEs are often wary about tapping into it based on future interest rates, and fear that their credit rating may impact their ability to borrow later in the future.
For banks, a business-as-usual approach based on predominantly manual processes and existing underwriting criteria will not work. They need to focus on building long term trust with SMEs that rely on them for financial support, personalized advice and security for their business. This can be achieved by banks reimagining the role of their relationship managers and providing a world-class banking experience to the SME market. A combination of a digital-personal approach will help reinstate trust on both ends.
Offer unparalleled customer-experience
SMEs still favor human interaction over self-service, putting banks’ relationship managers at the heart of all interactions. They view their bank as their “business partner” and not just a “financial services provider.”
When it comes to offerings, SMEs need banks that can deliver more robust solutions like billing and pricing, and more value-added services - and they are willing to pay extra for the same. For instance, much of the transactional digital services that banks offer their retail consumers are too commoditized to address the diverse needs of the SME market. The consequence of not being attentive to their expectations could cost banks significant revenue.
Banks need to provide SMEs with a positive customer experience and focus on meeting their needs. That means banks must offer quick, digitized online customer onboarding that uses technology to enable know-your-customer (KYC) and anti-money-laundering (AML) reviews more quickly and efficiently. Banks also need to be very transparent in their dealings and information dissemination by laying all the cards on the table. They must be able to respond immediately to SMEs’ needs.
The art is in finding the right balance between providing a great customer experience to SMEs and managing the cost of service. Banks can tap into the large volumes of transactional data to understand the SME business and the risk associated, and thereby offer value-based services to SMEs. Banks can facilitate access to the entire ecosystem of services and offerings that are not limited to banking, and this in turn, becomes a successful and timely opportunity for banks.
Anticipate their needs
SMEs are a dynamic segment and need to be catered to carefully. But can banks anticipate and address their needs well in time? Incumbent banks are challenged by their systems – systems that are not built to expose data to analytical tools. Not leveraging data could simply translate to even lower trust levels, in turn affecting banks’ revenue. Without having context of their business or their needs, it would lead to an inability on the part of banks to offer the right solutions to aid SMEs’ specific needs.
Banks can contextually support SMEs by understanding their business performance and responding to their requirements by efficiently analyzing and taking cues from existing data. This will allow them to anticipate the needs of these enterprises and reimagine the role of the relationship manager for a digital marketplace.
During times like thesewhen banks are expected to help small businesses bounce back, they can look at their institutional interactions with SMEs over the last six to eight months. If your customer is trying to speak with you more often, they expect you to engage with them – tying back to offering rich, unparalleled customer-experience.
Leverage data intelligence
If banks want to deliver better results, they need to monitor and understand data and interactions and ask themselves: what are the patterns that sit behind this data? And then they must act on it accordingly. The benefits of data and analytics outweigh concerns around the expense. Banks can use their data to enable remote advisory services at low cost and on a far greater scale, enable digital KYC, offer tailored solutions and custom design offers that meet the SME’s need.
It doesn’t end there. Banks are in the unique position where they can orchestrate multiple service providers into delivering those non-financial services required by an SME business. In addition to providing capital and innovative solutions, banks can – and should – create an ecosystem of partners for the SMEs they work with, a great benefit to both. Making these connections will be of vital importance to economies world over as businesses look to recover from this crisis.
Approach pricing innovatively; enhance profitability
Banks also need to digitize their business models and reinvent propositions for SMEs. This includes redesigning offers, ensuring customer-centricity and responding to SMEs instantly. SMEs turn to their banks to help them run their business better. Banks that still run on legacy core systems must separate their product and pricing capabilities from their core banking system and build a digital core layer instead. This digital layer will capture and log records of interactions with SME customers, their personal as well as business information, purchasing patterns and so much more, giving banks a better view of their needs and creating a more efficient communication channel.
Banks must develop a clear value proposition to partner with SMEs and offer them a broad range of solutions to operate and grow their businesses. That includes connecting SMEs with an ecosystem of suppliers, distributors and other SMEs, as well as offering the right solutions and deals to aid SMEs (cloud-based services is just one example). Banks must build this ecosystem, enable collaboration, and understand that this is about more than just entrepreneurs worried about the health of their business; for many SMEs, their livelihoods, dreams and more are on the line.
SMEs are the largest affected community due to the pandemic and banks have an exceptional opportunity to help revive these businesses. Banks can re-gain their trust if they become an integrator of services within the ecosystem to help address the unique SME needs. If managed correctly, banks will benefit from high rewards and can also generate platform revenues.How banks respond to these core set of customers today will have an accumulated effect on their reputation tomorrow.