There are big challenges as well as opportunities for Irish banks as they try to address the needs of the Small and Medium Enterprise (SME) sector beyond 2018.
Banks must address the needs of SMEs that increasingly want more tailored offerings at more differentiated price-points. Despite high barriers to switching, they are increasingly willing to go outside their main provider and engage with new technologies to obtain the banking services they need.
Our survey offers clues as to how to offset potential disruption. By offering differentiated propositions while continuing to leverage existing assets, by putting themselves at the centre of a financial ecosystem, Irish banks have an opportunity to maintain and grow their position as the primary financial services provider to SMEs.
In the survey, 76% of SMEs believed their bank failing is to provide a satisfactory service in at least one aspect of their relationship; 29% said there was an inability to provide a low cost service and 23% said a lack of access to a relationship manager was a problem.
Redefining and clarifying service offerings could help bank’s address the misalignment with customer expectations. Key to this is more differentiated and customised propositions at different price points, leveraging new technologies instead of the ‘one size fits all’ model.
Our survey indicates that customers are willing to pay for such services if they are convinced of their value and comfortable with the new technologies that enable them.
Our survey highlights the importance of having a local branch and dedicated relationship managers for a high number of SME customers. It also shows that 80% of Irish SMEs are interested in using new services driven by new technology provided by their banks. A potential strategy for Irish banks, therefore, should be to use digital technologies to re-imagine the role of the relationship manager and underpin new propositions that differentiate.
Making scalable solutions available for customers, perhaps in partnership with specialist providers, may become essential for banks competing with new entrants.
With 25% of SMEs indicating that they intend to switch their banks in the next 12 months, and the emergence of new players in open banking that will offer disruptive new services, banks can’t afford to do nothing.
Our survey shows that many SMEs believe banking propositions are too expensive with too little differentiation. If they don’t change, there’s a growing risk that other financials institution or non-traditional players will get there first.
Mixed messages from the survey point to a high degree of uncertainty among Irish SMEs about how Brexit will impact their businesses. As the trusted financial advisor to SMEs, Irish banks should be proactive and advise their customers as the implications become clearer.
Some of the contradictory results can be part explained by the North/South split. Only 33% expect Brexit to have a negative impact on their business, but nearly 40% think import and export costs will increase.
Northern Irish businesses have the most negative outlook, particularly in the event of a ‘hard’ Brexit. Only a fifth of overall respondents believe hard Brexit would prompt them to switch banks. The majority of these were from the Republic, where there may be concerns about restrictions on cross-border funding once the UK has left the EU.
Financial services companies across the world see the increased adoption of digital technology as a way of getting closer to customers, differentiating with new products and propositions, and opening up new revenue streams. This survey suggests, however, that as far as Irish SMEs are concerned, banks are stuck in a model where the only serious attempt at differentiation is cost.
A high ‘hassle factor’ has so far prevented SMEs from switching providers in large numbers, but the survey suggests banks would be unwise to count on continued customer inertia if open banking gathers momentum. As more competitive, technology enabled products and services become available from traditional and non-traditional players, the ability of Irish banks to attract and retain SME customers will be increasingly challenged.
DOING NOTHING IS NOT AN OPTION; TRUE MARKET DIFFERENTIATION IS BECOMING ESSENTIAL.