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What have we learned about small business banking on a global scale?

What have we learned about small business banking on a global scale?


Sibos presented us with the theme of collaborative finance in a fragmented world at this year's event; a theme that suited us down to the ground. At BankiFi, we are all about collaborating with traditional banks, providing them with holistic digital solutions that they offer to small businesses and helping them to mutually thrive together. The world of small business (SMB) banking is becoming more fragmented as time goes on and as more challengers enter the market. It's time to change this.

Our Head of Strategic Growth, Nick Reid, presented what we've learned about small business banking from our banking partnerships across the world, with findings being supported by our own customer-driven data, at Sibos 2023.

The Underserved SMB

The term "SMBs" and "underserved" continue to go hand in hand, reflecting that banks and financial institutions haven't fully met the needs of SMBs. But what does it mean to be underserved, and how can we change this perception? SMBs think in terms of workflows to manage and run their business - from order-to-cash, to procure-to-pay. With this mindset, they primarily focus on tasks such as managing their cash flow, invoices and supplier payments; placing their priorities on solutions that help them to pay and get paid faster, as well as run their business more effectively.

Whatsmore, it is believed within the industry that SMBs prefer digital-only solutions, however it's our understanding that they actually appreciate a blend of digital and human interactions, termed the 'phygital' approach.

SMBs are increasingly embracing multi-banking, holding accounts with both traditional banks and digital challengers. While they may use digital challengers for specific needs, incumbent institutions can challenge themselves to compete by offering the same value-added services. This trend debunks the myth that SMBs prefer digital-only solutions and highlights the opportunity for traditional banks to regain relationship primacy.

Understanding the SMB and their Needs

SMBs often find themselves caught between the retail and corporate banking platforms. This is because retail banking is often too simplistic for their needs, while corporate banking is overly complex. Some of our bank partners refer to this as "Retail++" or "Corporate--." This divide leads SMBs to seek financial solutions from challenger banks and other third-party providers, resulting in a fragmented experience.

For example, 87% of SMBs use at least one other digital tool for financial management. For the remaining 13% of SMBs with no digital capabilities, their financial management relies on traditional methods, causing inefficiencies and extra costs. To address this friction point for SMBs, banks need to offer comprehensive solutions that enables them to manage their finances in one place.

About 70% of SMBs expect to access value-add services within their digital banking channel, alongside their routine banking features. The desire for these services is, again, driven by the convenience of having all financial tools in one place. Furthermore, having the bank's brand on invoices or payment requests - generated from this holistic solution embedded within the bank's digital channel - can make SMBs, and their customers feel more comfortable utilising the service from a trust perspective.

In addition to this, receiving payments quickly and gaining real-time cashflow insights are essential for SMBs as financial management, particularly in today's economic climate, is imperative to survival.

Offering solutions that solve these SMB pain points, all from within your bank's digital channel is mutually beneficial to both you, the traditional bank/financial institution, and your SMB customers.

For you, it means that SMBs are brought back into their relationship with you, instead of being resolved to use a multitude of third-party providers because they can't get what they need from their bank.

For the SMB, being able to manage their workflows, pay, get paid and forecast their cash flow - all from one place - saves them time and money that they would otherwise spend on a multitude of other providers. In essence, banks are perfectly positioned to offer these less-fragmented and inclusive experiences that SMBs need.

Where Does Open Banking Come In?

Open Banking offers a significant opportunity for banks to create an inclusive experience for SMBs. Despite initial hesitancy, banks can use Open Banking to develop and nurture new relationships with SMBs while retaining their position as the primary financial institution. The ability to offer services to customers who don't have a checking account with a bank, as a result of Open Banking, is an inclusive approach that can enhance relationship primacy for the bank and SMBs.

Commercial Opportunities for Banks

Besides enhancing customer experience, these value-add services offer substantial commercialisation opportunities for banks. SMBs are willing to pay for these services, creating a new revenue stream for business checking accounts. Our research shows that most SMBs are willing to pay a monthly fee for these services, ranging from $6 to $20 per month. Moreover, this inclusive approach, driven by Open Banking and value-added services, increases customer stickiness, enables customer acquisition, and contributes to growing deposits and the loan book.

To Conclude...

The balance between technology and trust is crucial in modern SMB banking. Banks can play a significant role in providing inclusive, value-added services that cater to SMBs' needs, ultimately enhancing customer experience, increasing customer retention, and driving revenue growth. By focusing on this balance, banks can better serve the SMB market and strengthen their position in the financial ecosystem.

About Nick Reid

With 12 years' experience in providing award-winning banking and payments technology to financial institutions globally, Nick is Head of Strategic Growth for Europe at BankiFi and is responsible for helping clients and prospects with the commercialisation of their business banking strategies and the development of their SME clients. Nick is fluent in English, French and German.

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