Which Way Now for SMEs – Survive, Thrive or Start Again?

By Fiona Roach-Canning, Co-Founder and Chief Product and Marketing Officer of Pollinate International. 

The global economy is built on SMEs. Around 400 million of them employ roughly two-thirds of the world’s workforce. However whilst SMEs are often leaner and more agile than larger enterprises, access to working capital and credit can make them more vulnerable in a downturn. Year on year insolvencies in the UK have risen by 50% since lockdown began.

Without the right partnerships and support, many more SMEs may fail in the coming months. Their creativity, energy and ambition extinguished, along with countless jobs, and reduced consumer choice. Simply dismissing these losses as the law of the free market jungle is to misunderstand the context. Judging a business by its ability to withstand the closure of its market is, to paraphrase Einstein, like judging a fish on its ability to climb a tree.

Yet as with any crisis, there is opportunity. New circumstances demand new thinking, strategies and alliances. The coming months may present the perfect conditions for banks and SMEs to reset their relationships, introducing a new and revitalising era of co-operation.

It is clear we are facing a different future. But different how?

Equities, for now at least, are back with a vengeance. Meanwhile unemployment is soaring, and GDPs are contracting at almost unprecedented rates. This story seems far from over. The message then – be prepared for anything.

In the short term, to survive has been to adapt. This has been easier for some businesses than others. The ‘experience economy’ has, understandably, struggled under social distancing. For many there has also been the added spectre of knowing that Government support was finite, and that short term survival was merely a stay of execution.

Future-proof business

Many companies, large and small, have shown extraordinary resourcefulness. Their common trait has been recognising that, pandemic or no pandemic, fundamental human needs don’t change. Nowhere has this been better evidenced than the rise of Zoom as people seek new ways to connect with families and friends, to retain their sense of belonging.

Other businesses have also found new ways to satisfy customers with creative, compelling on-line propositions. Uber was quick off the mark with on-demand retail delivery, while Secret Cinema has reinvented itself on our sofas.

But for some, the challenge was too great.  Percy Ingle, the East London bakery founded in 1954, is one of the most recent companies to fall victim.

Equally intriguing is how businesses may transition to a new normal when lockdown is over, but with the knowledge that a resurgence of the virus may happen at any time. While a restaurant may not wish to become a pure takeaway, or a personal trainer to only operate through a webcam, as lockdown eases it seems likely that some changes will stick. Many businesses may wish to keep the option value of their online presence. While many consumer behaviours may eventually resume a familiar pattern, it is clear that the digital transformation that was already underway has sped up.

Out of crisis, opportunity

Banks and SMEs have drifted apart in recent decades. The 2008 crisis and PPI did little to improve trust in banks, nor in the financial services sector overall. Meanwhile banking groups’ efficiency drives have closed two thirds of UK branches over the last three decades.

However the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS) are allowing retail banks, as the main lenders of these schemes, to reconnect with SMEs. With almost £40bn lent so far, BBLS has helped over 800,000 SMEs to remain afloat, perhaps providing a catalyst for new and sustainable relationships.

The power of partnership

If banks seek to build durable and profitable alliances with SMEs, they must achieve two things.

First they must rebuild the trust of their business customers, strengthen relationships, and cultivate loyalty.

And second, they must embrace innovation, and develop new products, propositions, and services. Or they must package their existing ones differently.

Of these two key aims, the second is perhaps more challenging. Many banks have a culture and tempo which is unsympathetic to those who try to hurry it. However whilst many FinTechs have recently taken direct aim at the banking sector offering alternative mobile-based propositions to millennials and Gen Z, others believe that partnership offers a greater opportunity.

However time is not on the banks’ side. Covid-19 has inflicted more economic damage and prompted faster and more dramatic state intervention than has ever been witnessed in peacetime. Proof, if it were needed, that speed and responsiveness are currently every bit as important as strength or scale.

The new generation

In addition to Pollinate which partners with banks to reinvent their payments businesses, an array of other market entrants have now emerged. Start-ups like California’s Treasury Prime are helping to modernise banks by connecting them to FinTechs through APIs, while South Africa’s Entersekt provides banks with mobile-based app security and authentication software.

Meanwhile in the fight to combat ever more sophisticated fraud and promote a safer online environment Featurespace are using adaptive behavioural analytics to help banks identify and confront financial crime.

Where next?

By harnessing the complementary skills of their FinTech partners, banks are visibly travelling further and faster than they might have done alone. Most of all, they are beginning to unlock the huge underlying value of their data and distribution.

These invigorating alliances, propelled by ever increasing investor appetite for FinTechs, are rapidly transforming both operations and attitudes within the banking industry.

By seizing this opportunity to collaborate, and by reaping the full value of what each does best, the prospects for banks, FinTechs, and the SME communities they serve have never looked more exciting.