By Steve Naudé, Head of Product, Wise Platform
Banks have many different customers – from everyday people to big corporate behemoths. But there are few that they talk about with more love than small businesses. It seems as if every other marketing campaign caters to this audience – rightly so, small businesses are the main drivers of our economy. There’s a problem, though. The world in which these small businesses operate has changed dramatically and, sadly, banks are not keeping up.
A recent YouGov survey, commissioned by Wise, of 5,000 medium, small and micro businesses (MSMBs) across the globe found that 46% now operate internationally. In some countries, like Singapore, that number reaches 70%. This has been made possible by digitalisation and further accelerated by Covid. The pandemic led to small businesses becoming more comfortable with hiring remote talent and also encouraged many to seek new customers abroad and improve their online offering.
However, banks are built to operate domestically – which clashes with small businesses’ increased internationalism. Banks invest in domestic services like credit and loans, but not their international services, which are often slow, expensive, blighted by a lack of transparency and bogged down by paperwork. So, newly international small businesses are left with dated services that hamper their global ambitions.
For instance, of those MSMBs that operate abroad, just 21% think banks offer value for money and almost half (44%) said the poor state of international banking had made it harder to expand overseas. These international small businesses are often some of a bank’s most valuable customers. They move significant amounts of money, and they’re ambitious and often high growth. By excluding them, banks are placing themselves at a disadvantage.
Worse, though, is the fact that banks are restraining small businesses who may otherwise look to grow internationally. Of those put off from expanding abroad, more than half (51%) are deterred by the hassle of international banking. No other factor scored so highly, including tariffs, regulation and supply chain disruption. Given all that’s happened in the past few years, that’s quite remarkable.
Something needs to be done, otherwise banks will lose valuable customers. Already, many (42%) of the MSMBs that operate internationally use fintechs. That number will only grow as the services offered by fintechs improve, along with awareness of their products.
Banks may choose to improve their services, but that’s not easy. Building new international banking services takes huge investment and it means delaying other projects and priorities. Given banks’ domestic focus, it’s hard for this to ever happen. But doing nothing isn’t an option either.
Instead, banks need to consider partnerships. Rather than build their own services, banks can partner with fintechs to offer their services to customers. This allows banks to quickly and efficiently upgrade their service and tackle specific problems that face small businesses.
As an example, businesses are often forced to open a new bank account when they enter a new market – usually because their own bank only has a domestic focus. This is not a major issue for a larger business with a big team, but it creates a huge amount of paperwork for a smaller business and can prevent them from expanding altogether. Fintechs, unencumbered by legacy systems and with more of an international outlook, can tackle problems like these – with their solutions then available via partner banks’ platforms.
Another benefit is that partnerships allow banks and fintechs to combine their expertise. Banks have a deep knowledge of their customers. Add this to a fintech’s culture of imagination and experimentation, and you can deliver smart, highly innovative products.
However, for banks, the greatest benefit of this approach is that it stops the ebbing away of small business customers and can lead to the acquisition of new customers, driven away by their banks’ poor services. Small business customers will stay put if a bank can satisfy their international needs. And other small businesses, poorly served by their own domestic-focused banks, become potential customers. All this can be achieved affordably, too, since it saves banks from ploughing resources into developing their own services.
Some cultural divides will need to be bridged, not least the cultural gap between fintechs and banks. However, this can be done if everyone is bought in. Recently, we formed a successful, effective partnership with a traditional, very established bank on the other side of the world- all achieved via Zoom, thanks to Covid. It’s a partnership that shows just what can be achieved by banks and fintechs working together.
Bank-fintech partnerships are no longer a novel idea, however they are yet to reach their full potential. By identifying under-served groups, such as international small businesses, it’s possible to find where partnerships can have the most impact – for the bank, the fintech and, most importantly, the customer.
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