By Rupa Ramamurthy Vice President for corporate banking for Intelenet Global Services
The banking landscape has undergone a seismic shift in the last two decades, and this shows no signs of stagnating. How we view banking now is very different to what it was, or how it is will be in the coming years. The reality is that many banks have focused their-long term strategies around digitisation in retail banking, at the cost of neglecting the profitable segment of corporate banking.
This is surprising, given the revenue generating potential this segment has for banks, and furthermore, it is one which others are eager to fill.
The total credit gap for SMEs is estimated at US$1.2 trillion which is up for grabs!The second Payment Services Directive (PSD2)has democratised the banking landscape – competition for the corporate banking revenue pool is intensifying, with fintechs, digital-first challenger banks and tech giants carving out a market niche in payments, trade finance and financial advice.
SMEs are increasingly trusting fintechs to conduct foreign exchange, provide loans, or simply give advice. According to research, 68 percent of SMEs are willing to look elsewhere for financial services, with more than half tempted to switch banks it they don't get the services they require.
Similar to any business, growth and survival of SMEs is primarily dependent on access to finance. In today's world, loyalty of small business customers is fickle and relies heavily on experience with a bank – these customers want fast results to support their growth plan, and will not hesitate to look elsewhere if financial services don't deliver. As it becomes progressively easier for customers to switch accounts and find other providers, banks need to position themselves as a vital component for company growth.
If I were to put myself in their shoes, the first issue that springs to mind for a small to medium sized enterprise is cash flow. SMEs are balancing daily administration with the day-to-day running of the business and so they require quick and easy access to cash. I have spoken to SMEs who find it challenging to track and forecast their cash flow, as they need specialist knowledge to enable effective management of their finances.
To save these lucrative relationships, banks are adopting game-changing technologies to meet the needs of their clients with both speed and efficiency. Citibank is the first to join the UK's Open Banking framework to provide an aggregated payments collections service for its business clients. It is tapping the application programming interfaces (APIs) of the country's nine largest banks to allow easy access to payment data without the need to build applications or interfaces to connect to designate banking portals.
We are seeing a number of banks setting goals to better automate their banking processes, which in turn, will streamline client transactions and reduce process complexity. For example, when it comes to on boarding, there is an added level of complexity which can take traditional institutions weeks to overcome. . But with challenger banks, business owners can set up an account in minutes, simply by using their smart phone.
Digitising the banking experience improves client-business relationship, by enabling better flexibility and faster response times. For one international bank, automation reduced errors by 99.98 percent year on year, and improved efficiency by 15 percent.
Small businesses in the UK are diversifying their sources for lending, foreign exchange and fund control. Similar to consumers, business clients are using multiple providers to alleviate the challenge of working with a single bank, such as payment processes, fund control and merchant services.
Banks need to provide a high level of customer satisfaction to become a one-stop-shop for the financial needs of small business clients'. .The next wave of SME fintech can be characterised as consolidating disparate components of the small business experience. Going forward, banks are increasingly integrating invoicing, reconciliation, cash management and financial accounting. The game is not over, as banks are moving quickly to leverage their established customer base, with the aim of offering SMEs a multichannel banking experience.
In order to keep their heads above water and avoid losing revenue to competitors, established banks need to focus on boosting their digital capabilities. Consequently, this will help to shift the mind-set within SMEs and allow them to recognise that banks have the potential to be a single – and excellent – source for all their financial needs.