Complexity of SME market still eludes banks
Despite serving consumers for years, banks are still struggling to understand the complexities of the small and medium enterprise (SME) market, according to a panel at the International SME Business Banking Forum in London this week.
“Every business has different needs and requirements and to get that right you just can’t take a retail proposition and apply it to the SME market,” says Ian Sutherland, CFO of business challenger bank Tide.
“Equally, you cannot take a complex corporate system and then move it down to serve smaller companies. The problem is focus.” Sutherland believes that banks that focus on just the SME market will come out on top due to their understanding of the market.
Amir Nooriala, chief strategy officer (CSO) at OakNorth Bank, agrees. “Bankers have been replaced by graduates,” he says. “Back in the day business owners knew their local banker on a personal basis. That local knowledge has been replaced by checklist systems in cost saving exercises.”
Replacing the relationship has meant that banks have lost the in-depth local knowledge that allowed them to analyse businesses properly, argues Nooriala. “Access to proper granular local market data can provide insights that can make or break loan decisions,” he adds.
Nooriala uses a firm in a seaside town as an example, noting that it may do dramatically well during the peak tourism season but do poorly with local customers, while others in the same town may take in less in the summer but be consistently ahead of the market.
“As someone who lends to an SME, you are also lending to the consumers who use that business, and you must know if those consumers are happy with their service. That’s the hallmark of a forward-looking lender.”
Andrew Smith, chief technology officer at ClearBank, believes that customer expectations are now being driven by a culture of instant gratification and that extends to the SME sector.
“In the old days you could turn up to a bank branch and your details would disappear into the back office into the middle of nowhere and then you’d maybe get a letter with a card inside it in a few weeks.”
“My expectations are being led by my experiences with Facebook, Instagram, and WhatsApp,” he says. “They’re all immediate and real-time. If you’re going to be a fintech, a bank, a banktech or whatever, you’re going to have to do the same thing.”