5 minute read 2 Oct 2019
Three business people working at office

How banks can use data and technology to help SME businesses grow

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.

5 minute read 2 Oct 2019

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Banks need to be at the heart of the SME business – providing support, capital and innovative solutions to help small businesses prosper.

Small and medium-sized enterprises (SMEs) are the growth engines for much of the world’s economy—sources of innovation, development and jobs. And when we talk about SMEs, we are invariably talking about people we all know — individuals who are working alone, in growing firms or as part of platforms to create economic well-being. While there is no universal definition, SMEs are typically defined as businesses with 10 to 2,000 employees and an annual revenue of US$1m to US$500m. They make up a large, diverse group — both globally and across the industry.  However, many of these businesses face common challenges throughout their lifecycle — access to working capital, talent and the expertise needed for growth.

In serving SMEs, banks face robust competition from big tech companies and FinTechs. According to EY 2019 Global Fintech Adoption Index, 25% of SMEs worldwide have used services in the past six months provided by FinTechs in all of these four categories: banking and payments, financial management, financing and insurance.

FinTechs and big tech companies have raised the bar for all providers. They have delivered innovative solutions and richer user experiences to SMEs for basic financial services, such as customer payments, foreign exchange hedging and cash flow management. Helped by open-banking trends that encourage financial providers to use open application programming interfaces, FinTechs have made customer onboarding and credit decisioning for SMEs fast and frictionless.

To retain their dominance, banks need to be at the heart of the SME business, using technology to better understand the needs and context of the business.

To retain their dominance, banks need to be at the heart of the SME business, using technology to better understand the needs and context of the business, which in turn, will enable banks to better serve their customers. Banks have responded to the innovation challenge in three ways: by starting neo-banks focused on serving SMEs, partnering with FinTechs and big techs, and building their own technology in-house.

These developments coincide with a move away from the traditional product-push approach to one focused on partnership, to enable SMEs to succeed. A first key step has been to integrate additional services, such as accounting and human resources software, into their core value propositions—as part of customers’ monthly fees.

Given the magnitude of the need, size of the opportunity, and growing competition from FinTechs, banks should move quickly to retain current SME customers and attract new ones.

Clearly, with increased competition, banks must get the basics right. At the most fundamental level, SMEs need access to working capital. Financing their operations can be a time-consuming chore. In developed markets, the gap between the capital SMEs need and the amount they actually received is equivalent to about 3% of GDP, according to Allianz. In developing markets, the gulf is 18% of GDP, which adds up to US$4.8t in underfunding, according to the International Finance Corporation. Meeting this need could generate significant potential revenues—as large as US$25b by 2024 across the 12 countries in three regions analyzed by EY research.

In addition, banks need to provide SMEs with a positive customer experience and focus on enabling their needs — starting with fast, digitized online customer onboarding, leveraging new technologies that enable them to conduct know-your-customer (KYC) and anti-money-laundering (AML) reviews more efficiently. Banks can also take advantage of tools that make effective, automated credit decisioning possible during the critical early stages of the SME lifecycle. In response, banks can share this information with SMEs to deliver greater transparency in their working capital needs and business performance, enabling them to make more informed decisions.

Drawing on existing and new sources of data, banks can provide technology-enabled services, such as all-in-one electronic payment platforms that allow merchants to use a single device to accept payments by credit cards, e-checks and quick response (QR) codes. These types of solutions enable SMEs to digitize invoices, speed up payments, accelerate the cash conversion cycle and automatically associate orders, invoices and payments with one another.

As they serve their clients, banks can use artificial intelligence (AI) to provide round-the-clock assistance through virtual relationship managers and chatbots — and help their human relationship managers better understand and respond to the needs of the business. Such augmentation could also be provided to SMEs through AI-driven business advisors.

To be successful in this market and develop long-term customer loyalty, banks need to develop a clear value proposition and strategy to partner with their SME customers, and offer them a broad range of solutions to run, control and grow their businesses, including:

  • Helping SMEs connect with an ecosystem of suppliers, distributors and other SMEs
  • Using their expertise across industries, channels and regions, to offer growth opportunities and insights
  • Supporting business productivity by offering solutions, such as cash flow management, HR, talent and tax; and keeping their businesses safe through education on regulatory compliance

By enhancing traditional relationship banking with the latest advances in technology and data management, banks can more effectively offer SMEs with the support and capital they need to thrive and achieve higher survival rates. This gives them a better chance for small businesses to grow—and for their banks to prosper alongside them.

When SMEs worry less about funding and finance, they can devote more of their time and energy to running and growing their businesses. And that will be good news for us all.

Summary

Banks have an opportunity to provide technology-enabled services and richer user experiences to small and medium-sized enterprises (SMEs). In turn, those firms can devote more time and energy to running their businesses.

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.