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Back to the future: Forward thinking banks putting SMEs back at the heart of business
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Global Banking & Finance Review®
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By Marijke Koninckx, Chief Product Officer at BankiFi, explores how SMEs have been left behind for too long and how technology is helping to put this right for the banks and their customers.
For a long time, small businesses have been viewed as a ‘tricky’ customer segment, one that is hard to serve. Sole traders and small businesses span such a broad spectrum of activities, that it often seems hard to pin down exactly what this customer segment needs. After all, a landscaper, a coffee shop and an IT consultancy business have very different business models and requirements. Sounds impossible to come up with an offering that caters for such a diverse customer segment, right?
Well, it’s actually a lot more straightforward to create a meaningful offering to the small business community, much easier in fact than many banks think. However, to do this, we must first take a step back, assessing basic day-to-day needs and pain points, while thinking as a small-to-medium sized enterprise (SME), rather than as a bank.
As a small business owner, it can be a very daunting task to have to navigate different applications before gaining access to the different types of information you need, before then trying to understand and ascertain the full picture of your business’ financial health. Not only can this be complex, but it can also be very time consuming, inconvenient and an inefficient use of time for a busy SME owner. And this is all before taking any actions required, such as sorting out the collection of payments, chasing late payments or paying your own suppliers or employees, which then require using yet another app – it all becomes much harder to maintain a clear oversight on all the business’ finances.
With all the extra time and energy needed to sort out the different administrative and financial needs of the business, which are of course crucial in keeping the business functioning, it means valuable time is spent away from core activities. In addition, it often and results in less accurate results as there is far more room for human error.
Traditionally, banks have focused on how they can push their portfolio of products on to small businesses, rather than vice versa, and instead really listen and understand what their customer really needs to help them achieve success in the first instance.
Business owners don’t think in terms of product, they don’t care about the fact that payment transactions are typically recorded in their bank accounts and business transactions (like invoices or bills raised) are recorded in their accounting package. From a small business point of view, the demand is simple. As a business, my focus is on delivering the services or goods to my customer on time, doing what I’m passionate about, getting paid on time for my hard work and making sure I maintain a good relationship with my suppliers by paying them on time.
Facilitated by open banking, fintechs, accounting package providers and marketplace providers can offer SMEs this end-to-end journey that ties in nicely with their day-to-day tasks and they are doing this already.
Does this then mean that banks have already lost the battle for the small business customer? No, not at all. In fact, banks are very well positioned when it comes to helping small businesses as they already have the relationships in place. A recent survey [1] revealed that 91% of small business leaders trust in their banks to run business accounts effectively. Despite this, there’s no denying banks will need to adjust their approach to address the pain points of SMEs, keeping the businesses’ end-to-end financial workflows in mind.
An SME needs a 360° solution, not just a credit facility to bridge any cash shortages, but also a solution that helps get their invoices paid more easily to reduce late payments, settles supplier bills, manages cashflow and is seamlessly integrated alongside bookkeeping. Technology is fundamental in enabling different functions of the business to work closely together, in a cohesive, user-friendly and efficient way. When banks evolve their offering from a simple product push to a financial workflow-oriented offering, which helps small business communities to more effectively manage end-to-end financial activity, this will put the banks firmly back at the heart of SMEs.
To read more about BankiFi’s embedded banking whitepaper please download a copy here.
An SME, or Small and Medium-sized Enterprise, refers to businesses that maintain revenues, assets, or a number of employees below a certain threshold. They play a crucial role in economic growth and job creation.
Business banking refers to the suite of financial services and products provided by banks to businesses, including loans, credit, and deposit accounts tailored to meet the needs of companies.
Cash flow management is the process of tracking how much money is coming into and going out of a business. It helps ensure that a company has enough cash to meet its obligations.
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