A global Accenture study that surveyed more than 2000 SMEs across 10 markets reveals how SMEs are more than willing to embrace modern digital platforms for their everyday activities. What does this indicate? There’s a serious growth potential for banks to up their digital game with the SME customer segment. As much as there are growth opportunities, there are challenges as well.

So the onus is on banks, especially in today’s digital environment, to facilitate SMEs with the right tools to ease the complexity of digital banking and equip them with handy new-age applications that make digital banking simple and seamless and friction-free.. And it’s not as simple as it looks given how banks are confronted with a unique proposition. That of supporting SMEs to the best possible extent while also ensuring and safeguarding their own profitability.

Is that a catch-22? Well, not so much considering how banks can aim at hitting the sweet spot that serves SMEs’ needs amply without causing much friction in a bank’s business as usual.

In this blog, we outline a few strategies for banks that are looking to serve the SME market at scale in the post-pandemic business landscape.

SME banking – Challenges and opportunities

SMEs comprise a good majority of businesses worldwide and are found to be crucial game changers when it comes to job creation and global economic development. They make up about 90% of businesses and account for more than 50% of employment worldwide. Better yet, in emerging economies, they contribute up to 40% of national income (GDP).

Add to this equation another interesting number. Basis a World Bank report, the world’s micro, small, and medium-size enterprises are dealing with unmet finance needs to the tune of $5.2 trillion a year, roughly 1.5 times the current lending market for such businesses.

An EY Global SME survey reports how SMEs are primarily posed with challenges in the area of securing quick and guaranteed access to credit. Providing faster access to credit by removing potential roadblocks and enabling a consistent end-to-end digital-led banking experience is key for banks to position themselves as the go-to for SMES even amidst stiff competition from neo-banks and emerging fintechs.
● Cementing a fragmented SME banking value chain

The most commonly occurring pain point for SMEs that borrow is unprecedented time delays to funding and nerve-wracking uncertainty. Yet another dimension to this is how banking legacy policies and procedures put the SME borrowers through a harrowing experience. So, what can banks do to address the underlying issue? Probably bringing a fair degree of automation to end-to-end banking processes can significantly iron out most of these lengthy red tapes.
On their part, banks should go all out to maximize the efficiency of the SME-lending process by leaning on a technological rehaul.

Banks could do this by:

● Moving their IT architecture from obsolete to next-gen systems
● Partnering with emerging Fintechs
● Facilitating end-to-end digitization of the banking process
● Building a system to enable instant loan approval decisions

Simply put, banks have a mandate to reimagine the SME customer experience if they are keen on generating more opportunities and closing more loans in the SME segment.

● Driving decision-making through data and analytics

Banks still need to get up to speed to the adage that data is the new oil.
By driving decisioning through a monolithic infrastructure, banks tend to lose out on getting a 360-degree view of available data thus missing out entirely on its analytical value. A modular approach with legacy and new data sources could well be the solution to this given that it could potentially unlock the power of existing data and enable cross-functional data sharing. This could be enormously beneficial since it allows data to be triaged across several business functions and discover new potential with customer profiling, customer segmentation and targeting, upselling, and cross-selling, to name a few.

Banks will also do themselves good by investing in advanced data analytics in order to capture real-time credit insights from SME transactions and sales. This will help them leverage data not just at face value but also beyond by enhancing the performance of their banking models significantly. Building a robust modular framework for SME credit models would be a useful step in the direction of building predictive models even as data expands in scope.

How can banks be an ally for SMEs to have a great digital experience?

The first step to enable SMEs with great experience is to offer solutions that are easy to use, personalized, and cut down on heavy digital learning curves. One way to do this is to facilitate self-service options for onboarding, account management, and KYC verification.

Banks will need to move from a product-based approach to a customer-centric approach for faster SME adoption of digital products. This means user experience is key. Developing high-quality UI UX mobile and internet banking interfaces can help SMEs ease complex task flows, resulting in better engagement.

Additionally, banks can think in terms of building a comprehensive digital banking ecosystem that offers personalised solutions, specifically for SMEs. This can be in the form of digital initiatives such as remote account opening, robust contract management, digital signatures, relationship management, pre-approved loans, in order to cover an entire spectrum of services to offer a consistent, smooth, and intuitive experience for SMEs.

The one-piece advice for banks to strategically engage the SME market

If banks step up and move from conventional banking systems and embrace modernization of their business-lending processes, they can make for an absolute case worthy of a total win-win for both SMEs and themselves. The road ahead looks pretty optimistic considering how SME banking will not only be one of the most economically important but also one of the most profitable contributors to banking revenues. To conclude, banks need to meet the SME customer right where they are to offer a friction-free digital banking experience by reimagining and upgrading the customer banking value chain with holistic, relevant, and actionable digital banking solutions.

Jishith Gangadharan

Jishith is a marketing strategist with more than 16 years experience in IT industry. He has extensive experience across various facets of marketing in the industry. Jishith spearheads marketing and communications for Clayfin. Outside office, he enjoys travelling, reading and aquascaping.

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