The future of corporate banking for SMEs
Jane Tweddle, financial services principal, SAP UKI gives her view on the launch of Silicon Valley Bank and the opportunities in the banking industry when it comes to SME lending
The launch of Silicon Valley Bank’s (SVB) physical presence in the UK is certainly something to sit up and listen to. A bank in the UK which understands innovation and the importance of technology will surely prove a rival to other financial services organisations, not only when it comes to businesses looking for finance, but also for individuals. The very nature of SVB – both its characteristics and its service offering – immediately puts it at the top of the list when we think of what the future of specialised financial services could look like.
The increased pressure placed on banks by the UK government to improve their SME lending quotas is as prevalent today as ever. With reports at the beginning of the year citing the failure of high-street banks to meet Government-imposed targets, the Federation of Small Business (FSB) members felt they had missed their opportunities for growth as a result of not being able to access finance. The launch of SVB’s first UK branch is yet another reminder of the importance of the UK’s booming ‘innovation sector’ and more generally the highly aspirational entrepreneurs and SMEs who are vital to the UK economy, but require a banking service specific to their needs.
However, for me, what’s more interesting is the extensive range of services the Bank offers to SMEs and its personalised approach to providing financial services to innovative organisations. A bank which understands innovation and the importance of technology is already a unique proposition, but beyond the services SVB offers is the value-add of sector expertise; an understanding of entrepreneurs and a rich network of contacts, valuable to any start-up or SME and difficult for retail banks to compete with. So what can British banks do in order to retain and grow their commercial client-base? And, what does the future of commercial banking services look like in Britain?
The current SME lending landscape
A recent report from Bank of England confirms SMEs aren’t getting credit, and worse, are having overdraft facilities cut or pulled. The stress on the economy continues to take its toll, making it easy to see why lending is an unattractive prospect. Retail banks have received a push from Government to offer more financial services to SMEs; however it’s a strict process, sometimes a challenge even for established small and medium-sized businesses to obtain finance from retail banks. The reason why is because the banks are traditionally conservative and process-oriented in terms of risk assessments, which leaves no room for leniency.
SVB, however, is service oriented with an understanding of technology and innovation. The bank approaches SME financial services with more of an investment approach. Whilst we know funding is critical for SMEs, so too is encouraging and supporting innovation in the UK which in turn boosts the economy and creates more jobs. It could be argued that bigger banks in the UK are failing SMEs in this respect, creating an opportunity for new entrants and second tier banks. Nationwide, for example, recently announced plans to lend to SMEs, offering hope to those starved of credit.
Personalising the approach to corporate clients
Taking a more liberal, less risk-averse approach to providing finance, however, isn’t as straightforward as you might hope for most of the UK’s banks. SVB is unique in not taking a ‘tick-box’ view, instead understanding the investment potential in innovative companies. Whilst UK banks aren’t likely to drop their conservative approach, there are certainly lessons to learn in offering a more personalised service to SMEs, as they would to personal customers. Relationship managers don’t necessarily understand the unique business of an SME; instead they are looking at the accounts, not the individual business owners or entrepreneurs and their plans for growth.
The alternative to just lending is evolving or expanding the services offered, taking heed from SVB and thinking beyond traditional banking services; being innovative themselves. The opportunity to connect with customers in a similar way to SVB’s personal approach, but with larger corporate clients, is certainly recognised and already being taken advantage of by Citi and The Royal Bank of Scotland. Integrating more closely with their corporate customers, these banks have adopted a unique cloud based multi-bank platform which incorporates enterprise resource planning and treasury management. The purpose of the new approach is to seamlessly integrate banks with their corporate customers, enabling constant communication and a much higher level of customer service and relationship management.
Thinking beyond traditional corporate financial services
The challenge now is to continue evolving corporate banking services, combining it with a renewed approach to SME lending. The trust between SMEs and banks has been damaged, so work needs to be done in order to demonstrate more support for the sector. As previously mentioned, thinking beyond traditional service offerings to include those that will benefit SMEs, beyond access to finance is a game-changing move and one which I expect we’ll see more banks seriously consider in the coming months with the emergence of new partnerships.
The launch of SVB’s physical presence in the UK is an interesting (although not unexpected) move and will undoubtedly have been a hot topic amongst other financial services organisations. Without necessarily being direct competition for existing services in the UK, I think the launch of Silicon Valley Bank will be a welcomed shake-up for the industry and could be the encouragement existing banks need to shout louder about how they are innovating their service offering. A bank which understands innovation and the importance of technology is a welcome addition to the UK. With its unique service offering SVB demonstrates what the future of specialised financial services could look like.
I will certainly be paying close attention to both how the service is received, and how the UK’s banking industry will respond, in the long-term.