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March 11, 2013

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Home » Business » Finance Special

Small-business financing needs digital overhaul

March 11, 2013, Monday | Print Edition

IN the last few years, digitization has revolutionized the way small and medium-size enterprises (SMEs) do business. As a result, what SMEs need from their financial-service providers has changed radically, marking a new chapter in SME banking. Yet despite impressive digital strategies and many new channels to keep with these needs, many banks have yet to figure out how best to proceed.

Not so long ago, banking for small businesses and medium-sized enterprises revolved around basic transactions and loans, with relationships typically forged through personal meetings at the bank.

Now, many SME customers use their smartphones or personal computers to interact with the bank. At the same time, SME banking has grown in complexity, with customers moving away from "plain vanilla" banking in favor of more bespoke and innovative solutions.

In the past few years, digitisation has had a profound impact on how SMEs do business. Mobile technology, in particular, is transforming the way products are sourced, produced, marketed and sold. The pace of change is also accelerating, with mobile phones widely predicted to become the preferred consumer-payment device within just a few years.

Not surprisingly, all of this has changed what SMEs need from their financial service providers. With the bank branch no longer the fulcrum of relationships, banks must find a way to reconnect with SMEs in the digital space. Despite impressive digital strategies and the launch of multiple new channels, however, many banks have yet to figure out how best to do this.

The choice they face is stark - either find a new relevance for SMEs or risk losing touch with an important group of customers as new competitors close in.

So what should banks do to adapt?

First, banks should see digitization as a great opportunity to reconnect with SME customers. By investing time in understanding the digital agenda of SMEs and by developing a differentiated digital proposition, banks have the chance to recast themselves in a new role as digital partners to small businesses.

SMEs themselves have not changed. They are still on the constant lookout for ways to run their businesses faster, cheaper and better. They still need banks to support them as they grow and expand. Digitization merely offers a whole new set of options for achieving this and for allowing customers to do their banking and to access critical information while they are on the move.

Digital solution

Perhaps more than any customer group, SMEs are embracing digital solutions with great speed, with digital now widely predicted to become the main customer relationship channel for SMEs in the next couple of years. To a large extent, this trend is fuelled by the rapid advance of smartphones and tablets globally. In 2011, the sale of smartphones surpassed that of PCs for the first time. By 2015, according to Gartner, tablets sold are expected to equal sales of PCs.

Driven by customer demand and the ongoing search for greater cost-efficiency, many SMEs are now actively embracing e-invoicing or mobile payment solutions to allow their customers to make purchases on the go. You only have to look at the fast adoption of mobile payments tools such as Square and iZettle to see that this is an area of priority for SMEs. Banks should focus on developing a strong mobile banking proposition for SMEs, allowing busy SME owners to manage their banking needs from a smartphone or tablet. Virtual advisors can be useful, reinforcing the relationship aspect of banking while empowering SMEs to self-serve and bring down costs.

Banks can also develop mobile and Internet services that would help SMEs tap into new revenue streams and markets, and also to access relevant information beyond traditional banking services. By extending their online platforms, for example, banks could help create virtual communities that allow SMEs to network or promote their products and find new customers or suppliers. Such services would clearly add value to SME businesses and offer banks a point of differentiation at the same time.

Most important of all, while pursuing their digital strategies, banks should not lose sight of the basics.

Like all other customers, SMEs expect a seamless banking experience. They want banking to be as simple, fast, cost-efficient and convenient as possible. For all the investment in new digital channels and solutions, banks should continue to focus on this fundamental need. This means fully integrating all channels. It means having a comprehensive and user-friendly website, and it means helping customers save time and money on basic tasks, such as opening a new account or applying for a company debit or credit card.

Prosperous economies depend on SMEs to drive growth and employment, and SMEs depend on long-term support from banks. Getting digital banking right for SMEs and reinventing SME banking relationships should, therefore, be an urgent priority.

Finance Special


 

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