How banks can digitally crack the SME code in the fintech era?, BFSI News, ET BFSI

The banks face stiff competition for their personal customers, and will probably experience the same challenges in the SME arena.

Sophisticated, agile and well-funded organizations – including fintechs and large non-bank digital firms – are seeking to engage SMB customers, either through full-service or selective-service models, according to McKinsey. Other players (for example, accounting software providers) seek to disintermediate banks by migrating upstream and taking control of SME banking choices; payment platforms expand their solutions and lock in customers with financial and reporting products.

As alternative banking and financing options proliferate for SMB business leaders – and as their other providers offer richer, end-to-end solutions supported by sophisticated real-time, always-on, digital solutions – the traditional banking proposition is starting to feel very dated.

A number of banks have been able to achieve a significant increase in performance with SME customers. They have also found ways to balance revenue streams more against fees than interest margins.

At the same time, these managers have reduced costs by migrating a high proportion of customer activities to digital channels. Advanced digital banks in small business banks, for example, have increased the number of customers they onboard digitally to approximately 80 percent, while reducing onboarding time by up to 85 percent.

Unlike large commercial clients, where decisions are made based on more established organizational terms, SME decision makers often use their personal experiences to set their professional expectations. So, the challenge for banks is that they compete with the fully developed digital experiences offered by online stores, payment platforms or logistics companies.

Digital tools

Digital tools, such as proactive diary management, automated meeting notes, data mining with AI-driven queries, workbenches for integrative relationship managers (RM) and digital assistants, can provide parts of a comprehensive answer to these challenges. Counterintuitively, advances in banking systems, data analytics and customer relationship management mean that a digitally-led service offering can be significantly more personal and engaging than an RM-led approach.

SME decision-making dynamics are also important for banks to understand: the larger the organization, the more removed it is from consumer expectations.

A hybrid channel

A hybrid channel’s end state improves the viability of serving this segment. Few banks have yet developed a robust and complete digital offering for customers. Analogues from other industries suggest that this will take some time, and the transition will initially involve duplication across channels, customer journeys, risk models and service concepts. Building and maintaining these in parallel is complex and expensive.

Ultimately, however, banks should aim for a hybrid channel end-state where the most effective channel for a particular product or service becomes the default. The overall channel approach will run the gamut from digital self-service for simple, low value-added activity, to highly engaged, expensive, human-led engagements for complex and value-added services and sales. As a simple example, checking a bank balance would be an online activity, while restructuring a set of lending products would likely be an external advisory session with a product specialist.

When quality solutions are in place, customers must be actively guided there. Only by shutting down unnecessary, more expensive omnichannel proposals will banks be able to capture the financial and operational benefits of digitalisation.

Cross-selling opportunities on the front line

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Advanced data analytics can feed a range of tools to equip relationship managers and enable shared teams and product specialists to ensure they are aware and focused on customer needs. Artificial intelligence tools can scan information about customers and consistently present insights that the bank can act on. To ensure continuous improvement and efficiency, banks can set up continuous feedback between the front line and the analytics team.

Sales routines and tools

Setting a “gold standard” by codifying the sales routines of the best relationship managers will help raise the standard for the entire sales organization. Digital tools such as RM workbenches can add rigor to processes such as know-your-customer and ensure that access rights to controlled information and leads are always available to anyone working with customers. The right tool also frees up time that relationship managers usually spend on administrative tasks.

Performance management and competence building

Setting the right frequency for performance dialogues is critical to ensuring progress. These dialogues help ensure clarity in customer and product priorities, alignment of detailed input and output KPIs, and clear performance tracking. A well-designed capacity building program enables the frontline to hone commercial skills (such as cold calling, handling resistance) and product expertise.

Streamlined journeys

Digitization can enable cost-effective, more regular and sustained engagement with customers. In the personal market, for example, the number of customer engagements has grown by over 10 per cent year-on-year over the past six years, almost exclusively driven by digital channels.

Overall, moving the client relationship to the institution and away from the individual can remove the risk and failures of human error such as poor process execution, lost paperwork, forgotten return calls or suboptimal customer focus.

Create a compelling proposal

Few banks have the scale and expertise to be best-in-class across all the capabilities required to excel in serving SMEs. A more effective approach is to identify the areas of sustainable differentiation, where investment in internal development can pay long-term benefits, such as risk modelling, sector depth or product expertise or selection. In other areas, a bank is better served by providing best-in-class products or opportunities to round off a robust, less expensive and efficient solution for customers.

Balance is important

Banks either outsource too much or too little. Ideally, the bank owns and controls the sources of value creation and differentiation and brings in commodity services that benefit from scale greater than banks can create individually. A well-balanced mix of in-sourcing and outsourcing has the added benefit of bringing in external insights and best practices, and an openness to challenge and flexibility that can rejuvenate existing ways of thinking.

Adapt to new types of talents

Successful SME propositions will be highly dependent on digital and data analytics talent – ​​and via “translators” who leverage insights to create customer dialogue and impact. These new talent needs for SME banks will inevitably affect the internal and operational culture of the business. Decentralized and external ways of working create challenges around control, organizational culture and team dynamics, as well as opportunities around reach for product and industry specialists, flexibility in capacity and reach.

Frontline client relationship managers will continue to be an important and valuable part of the marketing proposition, but their efforts will be concentrated in those areas that rely on their skills and sophistication, with tasks less driven by such skills to be handled by the back office or through automation.

Think about process excellence

Superior processes are a fundamental requirement for success in banking in general. But for banks looking to gain a foothold in a new segment, the bar is particularly high: simple payments, account management or product problems are often the seeds of dissatisfaction that germinate into a dissatisfied and ultimately lost customer. (Mobile access in particular is prone to failure, and banks that treat the channel as an extension of the web, as opposed to a distinct experience, do so at their peril.)

To avoid missteps, banks must pay as much attention to the nuts and bolts of process excellence as they do to the other, more strategic elements of their work. With this in mind, banks should challenge themselves to reinvent and reimagine where possible, rather than tinkering with margins.