SME Banking UK – A market ready for innovation
February 2015 saw the launch of our latest latest addition to the Mapa Dashboards which audits SME banking offerings in the UK. After the first ‘state of the market’ update, it was clear that this sector is underserved, when compared to its personal and corporate counterparts. While the majority of SME offerings boast a similar look and feel to personal platforms and there is little in the way of features and functionality aimed specifically at servicing SMEs.
In terms of secure site functionality, a number of the brands audited do offer account user management facilities (Lloyds and NatWest). Additionally, HSBC have some unique offerings including their pension administration tool and an international trading facility. HSBC were also the only provider we looked at that allows customers to manage business credit cards within the online banking platform.
Outside the secure space, Barclays stood out as offering a wide range of business support tools and advisory resources, such as a webcast library and seminars/workshops. And in terms of online application facilities, while most major UK providers allow SMEs to apply online for business current accounts, Santander was the only brand that lets existing customers apply online for saving accounts, loans and overdrafts (customers can also apply for these products as part of their current account application). This can represent a significant limitation for business owners, as quick access to financing can often serve as an important life line to smaller firms. But what really stood out to us was the lack of business financial management/forecasting tools that are appropriate for SMEs.
The lack of innovation in this space leads us to think that the UK SME market is ripe for differentiation. The addition of products that can better support both a company’s day to day banking needs as well as financial management and planning, could really set a bank apart from the perspective of a small business owner. The lack of investment in this sector is understandable owing to its risky and fluid nature, with companies closing or being acquired all the time. Despite this, the fact remains that there are over 4.5 million SMEs operating in the UK that account for almost half the total turnover of private sector business, representing a significant growth opportunity for UK banks.
As it stands, the big five banks in the UK (Barclays, HSBC, Lloyds, RBS and Santander) dominate the small business banking sector, with a combined market share of around 85%. But as increasing numbers of competitor banks and other potential disruptors emerge, these brands should look to develop more appealing and targeted digital offerings for their SME clients.
We have already seen alternative funding options emerge recently, such as FundingCircle that offers peer to peer lending to businesses, which are lost opportunities for banks. It is also worth considering that we have seen a number of successful challenger banks emerge in the personal banking space, many of which operate largely online, such as Simple in the US. These brands have an advantage in that they don’t suffer from same the legacy issues as established brands, and can more easily take advantage of innovative technology to offer advanced web and mobile experiences to customers. This trend is not restricted to personal banking; CivilisedBank which is expected to launch later this year in the UK, will target small to medium businesses and will benefit from the lower costs of an online bank. The bank plans to offer business current accounts, savings, loans, overdrafts, FX and investments to SME customers.
Following from the findings of the first Mapa SME Banking (UK) Dashboard, Mapa will be publishing a report on differentiators and disruptors in SME banking, as part of their Mapa Insight Series 2015, later this month which will take an in-depth look at a range of overseas providers as well as non-bank innovators. The report will highlight a selection of standout platforms currently on offer, as well as potential disruptors offering techniques and concepts that are aimed at improving the customer experience. The report will reveal new approaches and can serve as a source of inspiration for development.
As the emergence of technology, innovation and potential disruptors targeting SMEs continues to grow and evolve, it stands to be an exciting space to watch over the next year.
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