Relationships between banks and SMEs revealed

Wednesday 7 October 2015

A study commissioned by cloud marketplace provider BCSG has revealed the state of relationships between banks and their small to medium-sized enterprise (SME) customers.

Worryingly, 73 per cent of the SMEs surveyed said they had had no contact with their bank’s relationship manager. This lack of communication between bank and customer means that it is not surprisingly around half of the respondents said they would consider switching banks, and 67 per cent said they were prepared to look elsewhere for financial services.

The research was based on a survey of 250 financial decision-makers for companies with 250 employees or fewer.

During the recession, many banks were reluctant to take the risk of lending to SMEs. This led to a number of companies beginning to offer alternative means of obtaining credit and money, such as invoice financing and peer-to-peer lending, in order to help smaller businesses expand.

While these options are continuing to grow in popularity, many SMEs are still keen to take advantage of traditional bank loans, which are steadily becoming easier to obtain as economic confidence improves.

In response to the findings, John Davis, managing director at BCSG, said: “Banks are under enormous pressure to reduce costs whilst increasing their bottom line. The majority are adopting a digital-first approach as they pursue cost efficiencies and adapt to changing customer preferences. But this has had unintended consequences.

Banks are now acting as reactive customer service outlets, providing basic services when asked, rather than proactively providing the advice and guidance that their customers require. The result is that many SMEs are now shopping around for financial services.”

At present, 85 per cent of SMEs are using online banking services at least once a month, compared to just 28 per cent who visit their local branch once a week. In fact, 41 per cent said they never visited a local branch in person at all.

In terms of solutions, Mr Davis had this to say: “There is good news, however. Banks are in a strong position given they have, effectively, a captive client base, with nearly half retaining the same bank for over five years. By utilising their digital infrastructure better to deliver guidance, insight and tools to their SME customers, forward-thinking banks can combat churn, cement a highly valuable stream of revenue and move from a basic transaction provider to a trusted business partner.”

While many SMEs say they would be willing to change bank, it is interesting to note that 49 per cent have been with their current bank for more than five years. It may be that they are not keen to deal with the inconvenience (perceived or otherwise) of switching, but it may also have something to do with their willingness to let banks change.

Over two-thirds (67 per cent) agreed that they would feel more engaged with their bank if it offered them the right tools and advice for dealing with the day-to-day challenges of running a small business, offering a way forward for banks looking to boost SME engagement.

By Victoria McDonnell

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