By Leonardo Mattiazzi, EVP, Global Innovation at CI&T

Being a small or mid-sized business owner is a tough game any way you slice it — the United States Bureau of Labor Statistics asserts that 1 out of 5 new companies call it quits within the first two years of operation. Now, with COVID-19 rampaging around the world, the need for good financial management and operational decisions is even more important, with more than half of businesses that closed during the pandemic (60 percent) predicted not to reopen.

So it’s a bit of a quandary when you consider that banks aren’t rising to the occasion and giving small and mid-sized businesses the support they need, beyond the obvious servicing of PPP loans. Instead, initial research from CI&T indicates that SMEs are tapping a host of FinTech options to meet their financial management needs — sometimes even for services that would typically be seen as banks’ territory. The leaders of these companies reported feeling well supported and that communications with their banks were good, but getting banks more fully into the game would potentially broaden their opportunities for customized financial help. This could provide much more stability and allow more companies to survive through and thrive beyond the crisis — and not just this one but the other tough times that always present themselves in the life of a small business, as well.

Why are banks and SMEs so disconnected?

Based on our research, SME leaders generally don’t see banks as institutions that can help them run their businesses. And part of this might be because, although some SME products and services are out there, banks simply have yet to present an end-to-end customer journey designed specifically for small and mid-sized companies. Instead, they’ve approached the commercial sector much like they have personal retail banking. They simply have not put enough effort into understanding what the companies need or thought about how to play a more meaningful role in the life of a business.

Each bank has a choice of strictly sticking to the traditional role of accepting deposits and extending credit or becoming the true backbone of financial wellness for businesses — which entails a very different, and much more proactive, attitude towards the services it provides. There are good examples to learn from, including this one from Alibaba and Ant Financial. Of course, Alibaba has resources and capabilities that are very different from a bank’s — but still, if banks passively accept their ineptitude to be closer to their customers, foregoing using digital capabilities to go beyond the basic expectations, then it’s always going to be FinTech and BigTech who will fill the gap.

This lack of connection and technological progress might be contributing to the view today’s entrepreneurs have of banks not being able to help well. Further, banks have to be able to sort through all the regulatory, registration, and other legal considerations, which can be quite complex when trying to deal with companies across states or even other countries. Banks also must consider controlling overhead when introducing new services and how to monetize them, as simply increasing common charges only reinforces certain negative images that SMEs have regarding banks, and they must determine profitability in a wide range of company/industry situations. The number and location of branches a bank has obviously plays a big role in that equation but also in customer reach. Segmenting SMEs and truly understanding how to best leverage each type of resource for each of those segments may be the best answer for banks to truly connect and work well with commercial customers.

The incredible opportunity banks need to seize right now

Admittedly, meeting the needs of small and mid-sized businesses well isn’t a simple affair. There are very real differences between industries and operational goals. For instance, one business might need to do a lot of international transactions online, whereas another does most of its sales in-person locally.

But it is well worth the effort for banks to figure out how to deliver. Small and mid-sized businesses currently represent an impressive $6 trillion or so of GDP. Depending on what a bank considers “mid-size business,” that number could be even bigger. Snagging those accounts could translate into millions or even billions for banks, even if some of the companies eventually close their doors. And since at least some of the companies banks work with will scale up, the yields could get only bigger over time, when small clients become large ones. So there’s a huge opportunity for banks to capitalize on if they establish good relationships from the get-go.

The first step to those relationships, however, is for banks to better understand and empathize with their customers, especially small and mid-sized business customers. Just as they did for individuals, banks need to show interest and better understand how SMEs work, what their preferences are, and how they expect their operations to change in the future. This is as much about technical details (e.g., what a company’s application infrastructure looks like) as it is cultural or personal ones (e.g., wanting to interact face to face instead of completing the transaction or task online).

Once a bank has this data and generates insights from it, they can work on creating solutions that are tailored for specific SME segments. Although banks can offer these solutions independently, they can also create mutually beneficial partnerships and leverage the existing FinTech ecosystem. An outstanding example is Cross River, a small bank in New Jersey that became the 4th largest lender of PPP loans during the pandemic, helping more than 100,000 businesses by partnering with a wide array of FinTech firms who acted as loan originators, such as Affirm, Betterment, Wealthfront, Intuit, Gusto, and many others — which are already part of the day-to-day of small and mid-sized business owners. Whatever the setup, support must be adaptable enough to grow with the SMEs, their lifecycle, and new market realities.

COVID-19 is making all of us personally and professionally reconsider what we do and why. And in that context, both banks and consumers are taking stock and changing how they behave. This provides the perfect foundation for taking new reasonable risks, restructuring, and collaborating. If banks grab this clear opportunity with enthusiasm and good planning, then they’ll be instrumental to the world’s ability to move forward.