Waking Banks Up To What SMEs Really Want

When it comes to the economy, SMEs might just be the Cinderellas of the market — without the fairy tale ending.

That’s how iGTB sees it, at least. The digital global transaction banking platform, which provides financial institutions with technology to streamline their services, considers small and medium-sized businesses as the undervalued, yet critical, aspect of the U.K. economy, vital to its health yet inadequately serviced by the banks.

To uncover why that is, iGTB conducted a survey, released last month. The executives behind the report — Head of Digital Council Phil Cantor and SVP and Senior Consultant of Channels Mike Rayfield — spoke with PYMNTS about why the results of the study dispel myths about SMEs’ banking needs and how decades of outdated habits have created a lack of proper customer service provided by FIs.

Financial Services Of Yesteryear

The research uncovered troubling, albeit not necessarily surprising, sentiments among SMEs and how they feel about their banks. Common phrases include words like “ignored,” “neglected” and “underserved,” researchers said, when SMEs file complaints about their FIs.

“I spent 15 years in banks, and I hear people talk about what SMEs need,” Cantor told PYMNTS. “I think the most classic quote I heard was, when somebody asked a banker what an SME would want in a situation, he said, ‘Don’t ask me; I’m a banker.’”

That’s the type of attitude that has led banks to fail when meeting the demands and requirements of small business clients, he added.

But, according to Rayfield, a lack of understanding of small and medium-sized business needs stems from a deeply rooted tradition of how banking is done.

“The banks’ stance on small businesses and SMEs is really a function of evolution,” he said. When online banking first emerged, it was only provided to large, corporate clients, the customers that had the resources to invest in such sophisticated tools.

“Technology has advanced to such an extent that banks can now properly service a scale market,” Rayfield continued. “It has the effect of opening banks’ eyes to the potential revenues and business lines out there within the SME sector.”

FIs have funneled their most sophisticated, innovative tools to the customers that will give them the greatest ROI. But as technology becomes more accessible and affordable, both Rayfield and Cantor said banks are increasing their interest in the SME segment. That doesn’t mean they’re approaching this customer base correctly, however.

“Part of our reason for doing the survey in the first place was the increased interest in the SME sector by the banks but not properly understanding them at the same time, because all of their experience has gone into understanding services to larger corporates,” Rayfield explained.

Maturing Demands

A key focus of iGTB’s research was to add some clarity to the misinformation about SMEs’ needs. One of the biggest surprises of the survey for Rayfield was the extent of SMEs’ international operations.

“From an SME perspective, it was surprising the scale at which SMEs are now trading,” he said. Smaller companies today are trading internationally and are becoming multi-banked businesses with FX needs.

Internally, these clients are heightening their demand for other sophisticated banking services as well.

Nearly three-quarters of the companies surveyed by iGTB said that they experience a lack of integration of their treasury management or ERP systems with the banking solutions offered by their banks — a statistic Cantor deemed “outrageous.”

This customer segment also expressed a lack of liquidity management services from their banks, too. According to iGTB, 76 percent of SMEs said FIs should be more helpful in terms of cash flow management, while 71 percent said the same about the detection of unexpected transactions.

“Why is everybody saying that liquidity [management] is not for the little guys? Because this says it is,” Cantor said.

“SMEs are time-poor, not brain-poor,” he added. “They’re not unsophisticated.” Banks need to begin not only helping smaller business customers with financing but with a higher level of services, like invoicing, supply chain management, cash management, automation and the like.

No “Human Touch” Necessary 

Perhaps one of the most prevalent myths dispelled by iGTB’s latest study is the assumption that smaller companies want the so-called “human touch” with their banks — that, in order for FIs to satisfactorily service these customers, they must provide an actual human to work with the SME.

Not so, the research found.

“I think the surprise for the banks would be that humans aren’t helpful all the time,” Cantor noted. “That was a bit of a surprise: the assumption that customers like personal relationships, whereas the corporates are probably thinking, ‘If I just do it quicker and I’ve got a system that I can trust, that’s a lot easier for me.’”

Cantor spoke frankly about the proper role of human customer service. “The truth is: You need a relationship manager when the system goes wrong and when a company is performing badly,” he suggested. “We need the human touch when we lose confidence that we’re going to get good service.”

Look at it this way: If a small business is on the phone with a bank’s relationship manager trying to transfer a large, specific sum of money across borders to a certain bank account in local currency, the payer may not have full confidence the transaction will be made correctly.

“You sort of almost feel like saying, ‘Are you writing this all down?’” Cantor added.

Not to mention, the banks’ customer relationship managers are stretched, with too many SMEs assigned to too few individuals at the bank, he said. Without banking professionals able to understand the particular needs of each of their SMEs, the tradition of providing too-basic, too-generalized solutions to small business customers continues.

The Value Proposition

It all comes down to money, and for banks, iGTB’s analysis looks at how a deeper understanding of each SME client can help a bank remain profitable.

Part of breaking the cycle of legacy SME financial services is to understand that, among SMEs, the “M” is far different than the “S,” Cantor said. Banks could be servicing a small business with a greater need for FX and liquidity management compared to a medium-sized company whose operations remain entirely local and which operates with a limited number of suppliers and partners.

“Banks have been very simplistic in their segmentation,” Cantor said. “It’s taken a long time for banks to learn that they have to start thinking more deeply about the real, underlying needs of their clients — not the surface needs.”

“Banks are concentrated so heavily on the top end; they kind of conveniently put everyone else into a single bracket,” Rayfield added.

But as regulators continue to look to the SME to propel economic recovery and growth, the iGTB executives agreed that financial institutions will be keen to start paying greater attention to the individual needs of their smaller corporate clients.

“The all part of banks learning the art of customer service, frankly,” Cantor said.