Why banks need to be business, not just financial partners with SMEs

To serve better, banks need to understand better

To truly become a business partner, lenders need to better understand each individual SME, and not just offer products or services based on turnover and sector. Banks need to transform their approach to truly understand SMEs, including asking themselves:

• “Where does that SME sit on the value chain: this should include the needs and demands of suppliers and customers.”
• “Where in the life cycle of a business is that SME: an early stage, turnaround or mature business will have different needs and aims.”
  
• “What is the goal for the business: an SME may be looking at growing globally or expanding into new products.”
  

Banks need to make a seismic shift in their level of understanding of what an SME is going through and therefore what help it needs, either directly or indirectly through its bank. This will help banks provide not just financial services, but business services. This would mean providing a value-added ecosystem for SMEs that matches their needs and desires. This is a shift from looking to sell specific products that suit the bank, not the customer’s needs.

Bank models and culture need to transform to support SMEs

To address the different attributes and needs of each SME customer, there cannot be a “one-size-fits-all” approach. Instead, banks should be willing to disrupt their model and culture to deliver for and support SMEs. We are already seeing some banks do that, and technology is clearly an important part of this. Some examples of that change could include:

1. Providing a trusted advisor who would advise the SME on the development and implementation of tailored strategy for its business. Banks must be relentlessly customer-centric, and this role would be centered around each SME’s goals.
   
2. Leveraging their data assets to create data and insight-based products to drive business decisions and market agility for SME customers. This could mean augmenting Relationship Managers (RMs) to better understand needs and create the right solutions for each business. It could even mean RMs that are sector specialists, so SMEs can benefit from deep industry knowledge.
   
3. Deploying advanced technologies at scale and using external data to enhance SMEs credit experience, eliminate friction and much of the administrative work, to speed up credit access.
   
4. Aiming to become a 360° partner and trusted consultant for SMEs. This would support customers across their life cycle - from the start-up phase to the management of "business as usual", through a tailor-made "high added value" service. This would be an extension beyond the "traditional banking perimeter" by offering non-financial services. It is the next stage evolution of a bank’s business model.
   
5. Providing customized solutions, comprised of interchangeable products driven by business flows and forecasts. These could be much more targeted and tailored than the broad products typically offered to SMEs.
   

New revenue and happier clients

The clear message from EY survey is SMEs have had a difficult time during COVID-19 and need help. From their lender, they would value a constant, trusted adviser who can support them and not simply sell banking services.

Of course, there is non-bank help available. There are specialist payment providers, lenders and even digital Chief Financial Officer (CFO) dashboards that can all offer assistance to SMEs. What makes banks different, and what puts them at the front of the queue opportunity, is the high level of trust that SMEs already have in traditional banks.

That trust provides banks with the opportunity to become SMEs business partners, a deeper and more valued relationship that just a financial partner. It benefits the SME as they can make their aspirations a reality, leveraging the network and technology of their bank. It is good for society, given SMEs are the backbone of the economy. For the bank, it provides a platform to offer services and help, that is really valued and for which customers are willing to pay for. That fee income is critical for a sector short on capital and looking to move away a reliance on interest rates.

The message from EY survey is a clear call to action for European banks – small businesses need help and it is banks who they trust the most. The next 24 months will show which banks have risen to the challenge. The good news is that the banks we speak to have never been more determined to better serve SMEs and help society rebuild and relaunch through whatever challenges COVID-19 brings.