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SMEs are underwhelmed by traditional banking – and banks must respond

With the Competition and Markets Authority (CMA) pushing for change and SMEs revealing they are underwhelmed by current business banking propositions, UK banks may find their dominant market positions coming under threat.

However, according to Mapa Research’s 2016 SME Banking Dashboard, some UK banks are responding to these challenges by being digitally innovative or establishing strategic partnerships with digital institutions.

In May this year, the CMA proposed a series of reforms to improve competition in the SME banking market. The proposal outlined that banks need to introduce an open API (application programming interface) banking standard. The standard will enable SME customers to securely share their transaction history with other banks and trusted third parties, allowing customers to get market comparisons tailored to their individual circumstances and be directed to bank accounts that offer them the best deal.

Although only a proposal at this stage, the government’s intentions are clear. The marketplace needs more competition and the government will support measures that encourage SME customers to explore other options away from the banks, such as FinTechs and other financial service providers.

In addition, a recent report by Accenture, ‘SME Banking 2020; Changing the Conversation’, revealed that only 63% of UK SMEs are either satisfied or relatively satisfied with their bank’s current business offerings, whilst 80% feel their banks could do more. The report also revealed that 70% of SMEs turn to other providers for services related to improving business performance and only 35% believe their bank can help them improve their sales results.

Not only are SMEs underwhelmed by banking propositions but they are also not receiving the additional core business services they require. SMEs do not see their banks as a business provider; instead, they are viewed as simply supplying financial products.

But the business banking market is changing. Not only is a government watchdog seeking change, but digital disruptors are offering innovative services in this space. Holvi, an online-only bank for entrepreneurs and SMEs, provides an online sales platform, an invoicing platform and a cash flow tracker to help small businesses understand their financial picture and future growth strategy. This goes far beyond a current account offering, by analysing and aggregating key business metrics for improved business performance.

Banks must act and demonstrate they can adapt their business banking propositions to start helping companies beyond offering financial products. They need to assist companies in areas where they are seeking the most help – the way they run their businesses.

So, looking at this quarter’s SME Banking Dashboard: how are banks responding to changing market conditions? The Dashboard shows that some UK banks are actually being very innovative in the SME banking space.

In May this year, Barclays launched its SmartBusiness banking platform. The service utilises big data analytics to reveal key trends around business inflows and outflows and provides businesses with key consumer insights by tracking whether payments are made by cash, debit card or cheque, visits and average spend of consumers.

Barclays business

Barclays SME

Barclays SmartBusiness not only helps manage key business services, but also compares the customer’s company alongside similar businesses for benchmarking purposes.

In April, Santander partnered with Kabbage to offer its customers same-day funding solutions. Customers benefit from greatly reduced timings for loan approvals and the receiving of the funds.

Other banks are streamlining online processes or redesigning their online banking interface.

So banks are responding and can reap the rewards as a result.

Accenture’s SME report states that banks have significant brand equity amongst businesses. SMEs trust banks to provide them with suitable financial products, whilst 31% are looking for closer engagement with their banks.

Banks now need to leverage this trust to develop stronger relationships with their business customers. Differentiation and success in the SME space lies in becoming more than just a financial institution, but becoming a trusted business partner instead.

Subscribe to the SME Banking Dashboard for more insights and screenshots from the public and secure areas of a range of banking competitors. Contact us today for more information. 

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