While SMEs have been served by banks for decades, current macro-economic factors and traditional approaches to banking have made it difficult for banks to address all SME client needs. European banks have struggled to serve the needs of SME customers while generating acceptable profits. Changing customer expectations, a high cost to serve, low bank margins and ever-increasing regulations are just some of the factors contributing to this trend.
As a result, a relatively high percentage of SME clients (roughly one-third in a recent Accenture survey) expressed dissatisfaction or, at best, a neutral attitude towards their bank. SMEs, for example, feel the need for integrated or bundled financial services, while incumbent banks are currently seen as offering only standardized, separate products.
Incumbent banks are trailing in product innovation, offering their clients non-differentiated offerings to keep costs low, causing them to struggle to maintain market share and achieve profitability.
We have identified three main reasons why incumbent banks currently do not have the capabilities to service SMEs in accordance with their preferences.
- First, they struggle to create a unified customer view. The silo-based product approach does not allow banks to unify data points and obtain a single view of their customer.
- Second, incumbent banks use collateral-based risk assessment models, causing them to bypass profitable clients not deemed as “bankable”. Fintechs and GAFAA (Google, Amazon, Facebook, Apple, Alibaba) type players have rushed in to fill this gap, using live transaction data to undertake risk decision-making and obtain a very accurate picture of their risk appetite. Banks need to modernize their methodologies and technologies to keep up.
- Third, banks today struggle to on-board SME customers easily, due to the paper-driven traditional means of on-boarding. Their competition, in contrast, provides frictionless onboarding and a much shorter time to market, with rapid Know Your Customer (KYC) processing and the use of transaction data to gather insights into the client’s business model.