How to disrupt the financial services SME banking market through digital

Small and medium enterprises (SMEs) are one of the most complex sectors of the financial services industry. They simultaneously have the characteristics of both personal and business customers, especially in the owner-managed segment. Financially, their needs span aspects of retail banking, corporate banking, wealth management and insurance.

Governments believe the SME sector is of strategic importance to economic growth. National strategies look to encourage and support the development of SMEs, particularly through export initiatives. Internationally, the financial services sector has been criticised by national governments for its failure to provide sufficient lending and support to the SME sector. This has prompted government interventions such as loan guarantee schemes, trade insurance cover and the establishment of state-backed entities to work with banks in funding SMEs.

Banks themselves are dealing with businesses of varying maturities and sophistication, and internationally face many common challenges:

  • Significantly increasing levels of competition from alternative lenders and non-banking organisations
  • Failure to sufficiently convert lending and other applications to grow books of business, despite increased levels of approvals
  • Variable quality of customer proposition, particularly in more specialist areas such as trade finance, treasury and wealth management products
  • Knowledge, conduct and consistency of performance amongst relationship managers, with a relatively low level of sales time spent with customers
  • Lack of stickiness of digital propositions and failure to engage customers sufficiently, other than transactional payment activities.

SME customers, too, have difficulties and either are reluctant to or don’t understand the benefit of engaging with their banks. At the recent American Banker Small Business Banking conference, it was cited that over 70 percent of small business owners would prefer to attend their dentists rather than meet with their banks. A WebPort Global (WPG) survey amongst 1,500 SME members highlights:

  • Only 30 percent of respondents rated their banks services as good or excellent
  • Less than 15 percent cited their bank as their lead source of guidance on trade finance, working capital and cash-flow issues
  • Almost 70 percent have not engaged their banks about trade financing needs or believe that their banks are only marginally skilled in these areas
  • Over 60 percent did not fully understand the benefit of trade products and how they could reduce the risk profile of their businesses.

Critically, evidence shows that SMEs who export grow 20 percent faster than their peers—an agenda that benefits the SMEs themselves, the banks that support them, and their national economies.

Berkeley Research Group (BRG) and WebPort Global (WPG) have recently announced a teaming agreement to offer a joint proposition to commercial banks that addresses several of the aforementioned issues. WPG is a trade portal that makes it easier for SMEs to trade internationally and also:

  • Aggregates disparate sources of trade information from governmental and corporate sources into a single repository to enable firms to assess whether they should adopt an international strategy; understand the necessary steps and requirements to access overseas markets; and access a range of public and private marketplaces for goods and services.
  • Enables analysis of international marketplaces down to country, company, category of goods and services traded (including volumes, ports of entry, credit information, contact details), thereby enabling firms to target potential customers and suppliers
  • Assists firms with contacts and introductions to experts, advisors, service providers and potential trading partner
  • Advises SMEs on optimising their profiles in the international market through both the virtual and the physical world. This includes proactive introductions to networks, events, trade programmes, education/knowledge resources and a pre-vetted community of other trading members
  • Provides access to a range of trade tools from leading providers such as Dun & Bradstreet, Datamyne and Escrow.com.

For most SMEs, an international opportunity will change their strategic perspective and pace of growth. With dramatic changes brought about by free trade agreements and technology, SMEs can effectively grow their businesses through exports empowered though a trusted network by which they can research and develop relationships and transact.
BRG and WPG are piloting a proposition for an initial cohort of financial services organisations to enhance their SME proposition and grow new revenues. The opportunities for banks include:

  • More compelling customer acquisition and retention through an improved value-added proposition
  • Helping the bank’s reputation with national government and other stakeholders in proactively supporting SME growth
  • Positioning the bank brand and its specialists as financing experts amongst the SME market—not just amongst its own customers
  • Sales productivity and deal-closure improvements for relationship managers through WPG tools
  • Improved credit decisioning through WPG data analytics and counter-party banking relationships
  • Earlier insight into potential deal opportunities for the bank to aid credit and other relationship decisions
  • Improved upselling and cross-selling of trade finance and related services
  • Access to new product partnering, white labelling and counter-party banking relationships.

BRG and WPG are working with financial services clients to develop an international community of banks collaborating with governments, trade agencies, world trade centres and chambers of commerce to create a new trade ecosystem. The implications for banking business models are fundamental and reflect many advantages that clients seek from embracing a digital philosophy. These include:

  • Participation within an open, dynamic and evolving ecosystem of collaborative partnerships: major impacts include product development, technology development, security, risk management, customer service and sourcing strategies
  • Clearer positioning and participation in the wider commercial supply chain: major impacts include marketing, business development, government and other relations
  • Benefiting from the power of data analytics from more comprehensive range of sources: major impacts include data strategy, tools and social-media strategy
  • Opportunities to develop new competencies: major impacts include recruitment, personnel development and advancement
  • Improved marriage between virtual and digital activities, giving rise to major impacts in process and channel design.

The business cases supporting many of the above changes are fundamentally in the areas of revenue growth, customer acquisition, customer retention, productivity, cost savings and reputation.

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