SMEs are becoming a strategic focus for banks as they
broaden their revenue streams. Introducing online services frees up
resources that can be directed on improving the relationship
management aspect and retaining business. But, asks Alison Ebbage,
what should these online services look like and will SMEs be ready
for them?
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Five years ago SMEs would have been regarded as too risky and
too time consuming for banks with a strong corporate focus. But in
today’s environment, spreads are down, interest rates are flat and
there is a poor loan uptake rate.
Consequently corporate banks are increasingly looking to
SMEs as a revenue stream. In addition, the UK government is
actively encouraging banks to extend credit lines and general
support to SMEs, in an attempt to produce economic growth.
Extending credit to SMEs is only
part of the story. The other is being able to service the sector in
a cost-effective manner, liberating relationship managers from
administration and allowing them to provide a value added service
to clients.
This dovetails nicely with a period
of technological innovation to online and mobile services, together
with the large amount of young entrepreneurs currently setting up
who are generally more amenable to online service and want greater
levels of automation.
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By GlobalDataA win-win situation, it would
seem.
Peter Fawcett, practice team lead
of retail and commercial banking Europe at Tata Consultancy
Services, says: “Online banking provision for SMEs is a clear part
of the proposition by banks to expand and increase their market
share but it is a very mixed bag.
“Banks need to be sure that they
treat the SME sector well, and not just as an extension of either
the corporate or the personal sector.”
Corporate banking
‘lite’
Indeed some banks view SME banking
as a toned-down version of corporate banking. The relationship
managers are the same as those handling bigger corporate
relationships. But to treat SMEs as smaller versions of bigger
business is missing the point somewhat.
The SME sector is distinct and
needs a service tailored to its specific needs and smaller
turnovers, rather than something that has been designed as an
extension of something else or, worse, as a service obviously
intended to act as another revenue silo for the bank.
Another approach is to consider SME
banking as an extension of high net worth (HNW) banking and treat
SME business owners as such.
This can work in so far as HNW
customers are more likely to extend their use of the bank if they
are satisfied with the overall relationship, but care needs to be
taken to offer sufficient levels of specialist business services
and capabilities.
No matter what angle, a quality
multi-channel delivery capability is critical. SMEs need good
online service provision. Delivery of service across multiple
non-traditional channels is critical to acquiring customers,
servicing a larger customer base and reducing the servicing
cost.
Indeed, certain products can be
delivered only through non traditional channels like the internet
or mobile phone. And branch banking hours are also business hours;
SMEs, and start-ups especially, need to use that time to focus on
the business.
Having an online service that can
be accessed at all hours is thus an obvious thing to have.
Fawcett says: “Potential small
business customers really want firstly to be in control and
secondly to have instant access to a rich mix of services.
“We can learn a huge amount from
other industries, such as retail, telecoms and hi-tech, which are
often a great source of innovation and best practice. For example,
customer-centric design is one area that is really growing in
importance.
“By putting the customer in control
and offering a rich mix of services, you can genuinely add value to
the proposition.”
And Nigel Owen, head of SME media
at NatWest, says: “Effectively, we want to support small
businesses, and although a lot of people prefer to come into the
bank branches some also like the ease of use that an online
facility can offer.”
The bank has some 1.2m SMEs as
customers and 1.1m of those are up to £1m ($1.6m) turnover – the
rest are up to £25m ($40m) turnover.
The NatWest figures illustrate the
importance of the entrepreneurial spirit of the start-up. Many
start-ups are run by younger people who are much more open to the
idea of using online and harnessing it to business need.
Fawcett says: “There is great
opportunity for online banking providers who can also provide rich
services to capitalise on Generation Y entrepreneurs.
“This segment of internet-savvy
potential customers wants to bank online, but also needs access to
online services such as loan and mortgage facilities as well as a
business or financial advisor.”
Fawcett thinks that, often, some of
the best examples of innovation can be found outside of the UK
market in countries such as India where the banking industry is
made up of many small agile companies.
He cites mKRISHI, an innovative
mobile- based solution in India. It offers specialist services and
alerts to farmers across India to provide information and advice on
areas such as loans and insurance as well as farming best practices
and information on getting agricultural products to market.
For the banks, meanwhile,
encouraging use of an online facility effectively means that a
business is more self sufficient – providing of course that the
online portal works well and is secure and reliable.
“Obviously online services are a
means for banks to reduce costs by encouraging businesses to be
self sufficient,” says Madan Mohan, associate vice-president at
Infosys.
“But it is only a good plan if the
infrastructure, be that online or mobile, actually fulfils the
needs of the business and actually works well.
“If something is quicker and easier
to do online then that speaks for itself.”
Basic
requirements
The basics then, when it comes to
online provision, are pretty standard and include 24/7 access to
bank and credit statements, the functionality to transfer funds
within the businesses’ own accounts and to others’, communication
with the relationship manager and management of cheques and other
payment methods.
Direct payment capability, already
available to larger corporates, is also a helpful online tool. It
is essentially a mechanism by which a business makes direct
payments to vendors.
Most of these services are usually
offered free of cost and are key from both a self sufficiency and
lower operational cost angle.
Owen says: “We have a business
build-er functionality online which is the actual nuts and bolts of
a small business’ needs. Businesses can view their accounts online
and make payments, move money around to pay fees or request other
transactions to be made.”
Perhaps most important to a quality
proposition is speedy and accurate cash flow management. Indeed,
cash flow is perhaps the most important financial that an SME,
especially a start up, needs to be on top of.
This is more than just seeing when
monies are moving in and out of the account, it is also about
timely and accurate processing to allow for business decisions to
be made and for nimble credit management.
Accordingly, many banks are now
incorporating instant availability within online systems.
Automating and improving
transaction processing can further be improved by electronic
invoice presentment and payment (EIPP).
Other important SME value added
offerings could be online lending, check imaging, online payroll
services and offering other services like brokerage, bank assurance
and mutual funds.
Neil Burton, director of product
services at Earthport, says: “SMEs need to be able to improve on
the reconciliation process not just from a cash flow perspective
but also in terms of the resource and time it takes to work out
what is coming in from where.
“Electronic invoicing is something
that could help with this. But take up is very variable and SMEs
tend to be reliant on their larger import and export partners to
introduce it first.”
Importing and exporting is another
area that could also easily be included in online capability,
according to Burton.
“There is a real gap in the market
when it comes to servicing low-value transactions. SMEs want good
costings, good quality and to improve their supplier relationships
and all within a secure service environment,” he says.
Personal touch
But no matter how good the online
offering, the personal touch still counts. SMEs obviously want the
maximum possible functionality online but some decisions such as
credit or asset finance still require a face-to-face meeting and a
good ongoing relationship with someone who actually understands the
business and its sector.
Owen says: “Access to face-to-face
time is really important to a large number of business owners, in
addition to the convenience and independence that online services
offer. In the future there will be more demand for online services
but the importance of actual relationship management should not be
underestimated however.”
In this context, the importance of
having a relationship manager with a good understanding of the
business in hand and its broader sector is even more important than
ever. It is especially relevant when it comes to considering the
specific needs of start ups.
For example, the needs of a company
supplying or manufacturing green technology are very different from
a service-orientated consultancy.
A good relationship manager would
also know about grants and legislations specific to that industry
segment and provide the business with links to third parties where
relevant.
Fawcett says: “In-depth knowledge
and experience are where a relationship manager can come into his
or her own.”
Some industry-specific knowledge
and contacts can be transferred online.
NatWest has an online business
school that has lots of planning software on it to help with every
stage: from writing a business plan to practical finance like how
to create a strong case for finance, what makes a viable business
in the eyes of the bank etc, as well as links to third parties like
lawyers and accountants.
It also has online podcasts with
leading entrepreneurs which have, according to Owen, proved
popular.
Mohan comments: “International
regulation is a good example of something that can partially be
transferred online – this might mean credit decisions and the
criteria are online and freely available, and that the application
and processing are also online – but the role of managing the
relationship and knowing all the individual facets of a business
will never change.
“The more banks can reduce manual
processing cost the more it can put into relationship management –
where it is really important.”
Adoption
But while online SME banking is one
of the most efficient methods of delivering banking services and
products to this segment, banks need to make high efforts to
increase adoption.
A comprehensive offering, an
easy-to-use and secure service, a stable technological platform and
marketing push in terms of product demonstration and incentives to
use an online facility are critical to success.
Owen says: “We have been active in
promoting our online services and we’ve had particularly high
interest in the podcasts we offer as well as seeing greater uptake
generally in our online offering.
“We think that businesses find it useful to have information all
in one place – there’s information for every angle, sector and
stage of business. SMEs are certainly not short of free advice but
finding the useful stuff can be a struggle and take up time.”
