19 minute read 29 Nov 2021
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Why banks need to be business, not just financial partners with SMEs

By Anita Kimber

EY – United Kingdom Digital and Innovation Partner

Digital and innovation leader. Open banking champion. Passionate about facilitating better customer experiences through innovation and creativity. Dedicated to building a better working world.

19 minute read 29 Nov 2021
Related topics Financial Services EMEIA

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European banks can access new revenues by transforming to meet the new needs of small businesses.

In brief
  • Two-thirds of small businesses are willing to pay a service fee for a trusted advisor, as they look to change in response to COVID-19.
  • To become a business, not just financial partner, banks need to improve their understanding of all aspects of small business operations and goals.
  • Banks will need to change their culture and models to offer personalized, technology-led solutions needed to support the vital small business sector.

In many ways, banks have come through the first years of COVID-19 well. They were resilient and secure in shifting to remote operations, and were central in helping getting stimulus money to businesses. They now face another challenge from COVID-19 – the impact it has had on small and medium-sized enterprises (SMEs).

To measure this in more detail, EY surveyed 5,600 SMEs on how the pandemic impacted them, their aspirations and how they interacted with their bank. In this article, we will explain the key shifts, what they mean for banks and how banks can best make the transformation needed.

What the COVID-19 pandemic hasn’t changed is the importance of SMEs to the EU economy. There are over 250 million SMEs across Europe - responsible for over 50% of GDP and two-thirds of all employment across the continent. From a banking perspective, SMEs have often been underserved, with a standardized approach. This is changing as pressure on capital is requiring banks to look for new revenue opportunities. In addition, banks are increasingly recognizing the benefits to the wider economy and society of a strong SME sector.

How COVID-19 has changed SMEs and the opportunity for European banks

The results have made it clear that there has been a significant change in what SME owners want from their own business after the initial shock of COVID-19, and what help they need to achieve this.

EY survey showed European SMEs have been significantly affected by COVID-19 across every component on the balance sheet, but especially a strong decrease in revenues (55%), profit margins (52%) and sales volume (51%).

In response, almost half (47%) of European small businesses are planning to change their current business model. To help make this change, two-thirds (66%) said they are willing to pay an additional service fee for a trusted advisor. This service would provide contextual financial advice and relevant solutions at the right time, perhaps, even before SME clients themselves recognize what they need.

This confirms that SMEs want to change, but are unsure on how to, and would be willing to pay for a consistent and trusted source of help on all aspects of strategy and operations. This is a significant opportunity for banks to revisit their value proposition to become business partners with an SME. They can be that trusted party that supports small businesses through their journey, be it international expansion, high growth or pivoting to a more digital business model. This is the time for banks to move from being a financial partner to a business partner for SMEs.

This shift can begin on solid foundations, with more than 67% of SMEs satisfied with the support they received from their financial institution. In addition, 63% say traditional banks, which have branches as their main touch point, are their preferred channel for financial matters, despite the increasing digital and mobile first services available from FinTechs or neobanks. However, if they fail to meet this demand, they may lose customers, with a third (34%) of SMEs currently willing to change their financial services provider.

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.


Banks have a generational opportunity to change the way they support and work with small businesses. Moving from just a financial partner to a much more holistic, business partner will require significant change from banks. It is a step they must take as their SME customers make clear that they need a trusted advisor to help them during the pandemic. It won’t be easy, but if done right, banks will have deeper and more rewarding relationships with small businesses – vital to help European economies as they respond to COVID-19.

About this article

By Anita Kimber

EY – United Kingdom Digital and Innovation Partner

Digital and innovation leader. Open banking champion. Passionate about facilitating better customer experiences through innovation and creativity. Dedicated to building a better working world.

Related topics Financial Services EMEIA