SME banking is particularly fertile ground for banks and financial service providers. In the UK, Europe and US, they make up 99% or more of the private businesses in operation.

Despite this, most SME banking options don’t meet the specific and evolving needs of modern SMEs, where many expect their business banking to be as straightforward and engaging as their personal banking. And even the banks that do offer such consistency, struggle to monetize this vast customer base.

As part of our ongoing mission to help banks remedy this, at the end of September we hosted a webinar entitled ‘How to build a profitable SME bank’. Our Head of SME Banking, Thomas Becher, and Global Product Marketing Lead, Barbora Juhaszova, were joined by McKinsey & Company Partners Lukas Gaertner and Nicolas Reuttner.

Over an hour they dived into how banks and FIs can seize the $850 billion opportunity in the SME banking landscape. Here are some of the key takeaways.

Banks must meet changing customer expectations

All our panellists were in agreement on one thing: the expectations of SME customers have changed. This manifests in a few ways, noted Lukas. He explained how SMEs surveyed directly cited responsiveness of coverage, competence and knowledge, speed and timing of execution, availability and insightfulness of digital tools, proactiveness and team collaboration as their main banking needs.

Banks have always struggled to serve SME customers, explained Nicolas. “On one hand, SMEs have the complexity of a corporate client, but the pockets of a very affluent customer. For banks, this makes them a special segment to service.”

But, he added, digital banking has made meeting these needs not just easier, but more efficient too. Now “you can have a thoughtful, engaged relationship with your customers” while the efficiencies that digital banking can provide offers “a reduction of almost two thirds of your cost to serve the client.”

This has additional benefits too. “Customers that are digitally engaged also generate significantly more revenue for the bank..”

During the Q&A, the panel was also asked about the threat banks were facing from tech companies such as Apple entering the space. While it was certainly a concern for banks, Thomas said, overall they are embracing the competition and sensing opportunities for collaboration.  “I think the banks have acknowledged this race and are very eager to compete. These banks are eager to use technology to create use cases and concrete value propositions, so they see strong opportunities for collaboration too.”

New technology is creating new revenue streams for first movers

What became clear to everyone who had joined the webinar is that there is a growing divide between banks that have embraced digital transformation and those that have not. As Nicolas noted, there’s “dramatic difference between the banks that are most digitally enabled, that in turn is rewarded by more than double the amount of engagement with customers.” This translates to an uptick in revenue too and Nicolas explained how by examining the data of around 50 banks, McKinsey had found that a higher digital offering resulted in not only a more efficient client servicing costs but stronger relationship primacy and higher levels of customer experience.

As Thomas saw it, now is the time for those banks that haven’t moved yet although the SME banking space is so broad and versatile. “There are lots of things banks can do to stay relevant. So there’s no ‘winner takes it all’ here. There’s not even really a first mover advantage – but there’s a disadvantage for last movers,” he said.

All of this, both Nicolas and Lukas agreed, must start with a top-level customer interface. “You only get to make a first impression once,” stated Nicolas. Lukas also highlighted the need to prioritise high volume processes, “which in SME banking tends to be credit.”

While the focus of the webinar was on existing opportunities, there was a view toward what the near future will bring, with generative AI particularly exciting to the panel. Lukas explained how generative AI can drastically improve the efficiency of relationship managers. By partially automating tasks such as call notes or drafting internal memos like credit or KYC memos, relationship managers can allocate more time for higher-value activities like client engagement.

ESG regulation presents banks with a “huge opportunity”

Sustainability came up again and again, with Lukas highlighting how 117 banks had now signed up to the Net Zero Banking alliance and that collectively the top 50 banks in the world have committed $9.5 trillion of green financing commitments such as green & social bonds and green and sustainability-linked loans. “Sustainability is a topic where banks have very little choice but to act,” he explained. But, when it comes to SMEs, this also presents banks with a “huge opportunity.” “You’re facing clients who appreciate the bank’s support in terms of getting the reporting right, getting the data right, financing the transition. […] If you have those capabilities, that can set you apart from competitors, and you will be a revenue driver for you as a bank.”

How SAP Fioneer can help to build a profitable SME bank

SAP Fioneer’s SME Banking Edition empowers banks to seize this moment and provide tailored financial services to SMEs at scale. By leveraging our robust and market-proven technology, banks can rapidly launch flexible, competitive SME banking products. This enables them to foster trusted, long-term relationships with SMEs and help them in growing their business.

Find out more here.

You can watch part of the webinar below, in which our SME banking expert Thomas Becher talks about the opportunity that lies in SME banking and showcases our solution.

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