The financial services industry is undergoing a transition in the UK. How can traditional banks evolve to meet the needs of SMEs?
Entrepreneurs come in all shapes and sizes. From the FinTech start-up or family business on the high street, to the home-based manufacturer using 3D printers and the power of the internet to reach new markets, the path from start-up to corporate is no longer linear. The banking needs of small and medium enterprises (SMEs) are changing dramatically, and the banks’ responses need to evolve accordingly. The UK government and regulatory bodies are applying increased scrutiny to the segment to ensure both innovation and competition in the market. There can be no doubt that increased access to debt finance and supporting services is required. There are now nearly 5.5 million SMEs in the UK (signifying a phenomenal growth in recent years). These SMEs have a turnover of £1.9t, covering 51% of all private sector turnover in the UK. We are seeing a growing market with diverse and complex needs. One that needs better products tailored to financial services. A tangible example of regulatory action is the recent formation of the Banking Competition Remedies Ltd., an independent body which is expected to administer access to £775m of funding for those that can demonstrate they will address SME needs. The intent is clear: increase access to capital, enable supporting services to the SME lending market and support the lifeblood of the economy. At EY, we believe this is a great opportunity for the market — not only those bidding for funding but everyone involved — to re-examine and reimagine their propositions by putting the needs of SMEs first.
We think it’s vital for traditional banks, challengers and FinTechs to look at how they can do things better. This is not just about tweaking existing products but about having the right propositions and the right support and services.
Digital is at the heart of the next wave of SME banking services. SMEs use digital platforms for their businesses and have every right to expect to have their financial services on these platforms too. This is even more important with the advent of open banking, which has changed the traditional competitor landscape. Firms need to make sure that they can combine innovative digital and data offerings alongside human advice. In this report, we have outlined several questions which we believe firms need to ask themselves on how they can really help the SME community and provide additional insight, tools and services that will best serve their customers. Firms that answer these questions the best are likely to come out on top. Not just in the funding contest, but in the ongoing battle of attracting and retaining SME customers.