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SMEs are no longer an afterthought for banks. They now represent a lucrative money-spinner, and we’re not talking about loans. We’re talking about digital tools that SMEs not only want, but are crying out and willing to pay for.
Banks are in an enviable position, as they have an unrivalled platform to offer SMEs what they want and to tap into a new revenue stream. But first, they must ask themselves these five vital questions.
1. “Do we really understand what SMEs want?”
This is the quintessential question facing banks that seek to get a leg up on their competitors in the new small to medium-sized enterprises (SME) banking frontier. A true appreciation of SME client needs and wants, and how to deliver them, will decide the winners and losers in this new, multi-billion dollar banking segment.
What do we mean by “truly understanding your SME client”? We mean knowing exactly what digital tools they want to make the daily running of their business easier, quicker and so useful that they are willing to pay for it.
SMEs have demonstrated a willingness to pay, albeit modestly, for high quality, high value business and finance tools. The caveat for banks however, is that on their own, to get to a level of deep understanding of SMEs, massive capital investment is required, it will be slow and it is questionable whether it will even prove to be successful.
This is why more banks are collaborating with fintech companies. Fintechs hold the key to understanding the customer. It is through leveraging this know-how that fintechs hold a monopoly on that banks will profit the most from in this new SME banking frontier.
2. “Are we ready to become an SME business partner?”
Whether banks want to admit it or not, the industry has been known for historically being profits-centric. Frankly, this will not wash anymore, in a sector that is set to become ultra competitive. It’s time to be client-centric.
It is after all, one of the main reasons why fintechs have rose to prominence. Through innovative, tech-driven financial solutions at accessible prices, fintech has a reputation for being customer-centric – for being a business partner. It is not merely an option for banks to learn from fintechs; they must.
If your bank is eager to capitalise on the new opportunities in SME banking, it must change how it views its role with SMEs. SMEs don’t want a mere service provider anymore. They want a business partner – an entity that understands their needs and helps them to solve their business problems and more onerous, time-consuming tasks in a cost-efficient, convenient manner. Can your bank be that business partner?
3. “Do we fully grasp the scope involved?”
In the UK alone, the new revenue streams offered by SME banking amount to an estimated £1.5 billion per year, and that’s without the further opportunities of cross-selling that new client acquisition opens the door to.
But to give your bank the best opportunity to bite off as big a piece of this pie as possible, it must fully comprehend what is involved, and avoid the temptation to cut corners with what may appear to be quick-win solutions.
To win the SME banking race, it cannot be approached lightly. It will involve considerable investment in time and capital. It will necessitate an organization-wide shift at all levels. It will open the bank up to a degree of risk.
But the greater risk is almost certainly electing to ignore the threat of failing to act or in taking a wait-and-see approach.
Your bank will have to develop much more intricate, meticulous systems to categorise different types of SME and better serve their needs. It will be required to build a well-oiled machine of communication channels within the banking organisation and with partner fintech companies. It will, for its own benefit, need to learn how to harness the power of its vast reservoir of SME client data.
4. “Do we have a cross-selling plan ready to go?”
Further opportunity to serve the SME segment and to boost revenues lies in the chance to cross-sell. Perhaps your bank attracts new SME clients with a Business Financial Management tool that it sells to SMEs at a low price point.
Your bank is already providing significant value to these SME clients. Through fostering a strong working relationship with SMEs while they use the BFM tool to solve pressing business needs, trust is built between your bank and the SME. This makes cross-selling much easier. Perhaps the SME needs foreign exchange services, or a business loan, for instance.
Does your bank have a streamlined digital process in place to evaluate when to cross-sell, and to evaluate and log the business finance needs of SME clients? This is crucial, because it solves more SME needs and brings in extra revenue for your bank, as well as enhances brand loyalty.
5. “How does this fall into the wider changes in banking?”
There are many shifts taking place in banking right now. The digital revolution and the fintech movement are the two most important, which happen to be inextricably linked.
Then there are the incoming Payments Services Directive 2 and bank account aggregation developments, which are sure to shake up the entire financial sector in Europe.
How does the new SME-banking shift fall into the wider changes in the sector? This is an important question, as this new SME banking opportunity involves digital knowhow and fintech innovation. The upcoming September 2018 PSD2 and account aggregation developments will have a further impact on your bank’s interests in SME banking, as it brings with it a new level of competition.
Getting this urgent SME banking challenge right will place your bank on a strong trajectory for the sector-wide changes that will take place in coming years.
This article originally appeared on blog.strands.com