Friday 20 May 2016 12:39 pm

Here is how banks can better compete for, and profit from, SME business

SMEs are the backbone of the UK economy, generating roughly half of all private sector turnover and employing around 60 per cent of the UK workforce, according to the Federation of Small Businesses.

For banks, then, addressing the needs and expectations of this fast-growing and influential segment must be high on the agenda.

The good news? According to our research, the majority of SMEs are satisfied with their banks. They’re looking for high service quality at low cost. And, broadly speaking, they believe that’s what they’re getting.

Read more: Why banks should be offering more P2P and bitcoin services

But there’re plenty more banks could be doing to build on these relationships and, indeed, to generate significant revenues by broadening the services on offer to the sector.

The SME market is hungry for more business support. According to our research, 60 per cent of SMEs are looking for closer engagement with their bank; 32 per cent want their bank to be proactive in suggesting ideas while 28 per cent want their bank to recognise that their needs may not be simple and provide more complex services on demand.

There’s no question that SMEs need value-add products and services. At least one in three are already using, or have expressed an interest in, a range of services that will help them to run their business better, improve customer service or to increase sales.

In the Italian market, for example, Deutsche Bank has teamed up with UK cloud-services company BCSG to offer their small and mid-sized business customers a range of non-banking services such as financial management tools and industry insight to help enhance their businesses.

Read more: The four things which could tip the scales in favour of fintech over banks

And we know they’re prepared to pay for them. More than 20 per cent of SMEs would be happy to pay an additional monthly fee for value-added services.

But banks have stiff competition. Only a very small proportion of SMEs actually look for services to address their broader business needs when it comes selecting a business-banking partner. Instead, they identify other providers as the more obvious choice for advice and support – such as accountants, lawyers and investors as well as the many new players that are entering the SME space with digital offerings, such as digital payments firm iZettle for point of sale solutions and peer-to-peer lender Funding Circle for small business loans.

Our findings show that the total revenue opportunity for UK banks, were they to meet the demand for value-add services, is a massive £8.5bn by 2020. That has to be worth playing for.

So what must banks do to compete in this market?

Ultimately, they need to change the conversations they’re having with their SME customers. These conversations need to start being more about ‘value’.

We know that SMEs trust their bank, and that they are open to having a closer relationship with them; the door is already ajar. The priority now for banks must be to evolve from ‘financial services provider’ to ‘SME business partner’.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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