SMEs see banks as utility providers not business partners – and banks agree

Strands, a leading provider of business financial management technology, today announced the findings from its SME Banking: Intelligence – Not Applied, a study of over 200 small and medium-sized enterprises (SMEs) and banks serving over 1.3m SMEs. The study reveals SME’s current and future business banking requirements, and how close banks are to meeting those needs.

Intelligence – not applied

The research revealed that ‘economic uncertainty’ is the number one challenge facing SMEs. It will come as no surprise therefore that when it comes to banking, SMEs are looking for banks to help them manage and grow their businesses during turbulent times.

SMEs do not doubt their banks’ ability to provide good advice. Nearly half (46%) of SMEs think their bank “understands their financial needs” well, rising to a staggering 91% for understanding their needs well or fairly well. The problem is that intelligence simply isn’t being applied to services offered, especially digitally.

Greater digital interaction is the most effective way to retain and attract SMEs. 84% of SMEs would like financial planning and business growth advice delivered digitally.

However, less than half of SMEs say they currently receive financial planning functionality from their bank and less than a quarter have access to budgeting or spending tools. To compound the issue, only 34% of banks felt that financial planning and business advice was a key need, with just 17% currently offering digital financial management tools. And the availability of these services isn’t set to grow significantly in the next 12 months.

Utility provider, not business partner

While banks have digitised transactional services to attract and retain customers, financial management – which SMEs value the most – has been left behind.

The result is that nearly 70% of SMEs regard their bank as a utility provider rather than a business partner and a staggering 83% of banks admit that this is the case.

SMEs are growing disillusioned with the core transactional services they are being offered, with 40% of SMEs citing ‘lack of personalisation’ as a major reason to leave their current provider. Banks agree, but only to an extent: only 17% of banks cited ‘personalisation’ as a reason for SMEs to leave.

However, despite banks understanding the importance of digital to SMEs, they are just not agile enough to develop the services that SMEs want now. The majority of banks – 83% – believe digital transformation will take 4 -5 years citing lack of a sufficient budget, legacy technology and regulatory compliance as the major barriers to change.

With the gap left wide open, challenger banks are already encroaching on the SME opportunity. The survey revealed that just under half – 43% – of SMEs are considering switching to a challenger bank. Banks are keenly aware of the threat posed with 83 percent saying that SMEs are likely to open an account with a challenger bank.

“In a period of intense economic turbulence, the existing relationships between banks and SMEs are beginning to weaken. SMEs are crying out for personalised financial advice, delivered digitally to help them manage and grow their businesses in times of grave economic uncertainty. Incumbents are failing to meet these needs and are increasingly regarded as a utility; simply a provider of transactional services,” said Erik Brieva, CEO, Strands.

“The situation is not insurmountable. Traditional banks have the relationships with SMEs. Traditional banks are still the providers of choice to SMEs. And traditional banks have the financial intelligence SMEs crave. Banks need to apply this intelligence – digitally, and in a personalised way – to become business partners, and in doing so retain and grow their SME market share,” concluded Erik.

The report SME Banking: Intelligence – Not Applied is based on two surveys. Sapio Research, on behalf of Strands, surveyed respondents from over 200 UK SME companies, employing up to 250 people. Executives from banks, serving over 1.3m UK SMEs, were also interviewed using the same questions.