Big Business in Small Business – how SMBs are transforming the Banking Ecosystem

How are You Thinking of your Customers? 

The PACE – Performance Against Customer Expectations – survey has been measuring SMB customer perspectives on banking providers and the impact of technology since 2017. On considering the latest 2019 findings as a whole, four key takeaways emerge: managing customer churn, building out trust, equipping and enabling people alongside technology, and focusing on the user experience. Over the next 18 months to 2 years, I also anticipate a fifth takeaway – embedding social impact by design, as consumers demand a commitment to financial inclusion from their core banking provider, alongside transparent metrics to measure its progress and open dialogue channels to contribute to its evolution.  

Indeed, SMBs may be small to medium size businesses in terms of employee numbers, but they are increasingly big, innovative and sophisticated business for the banks which serve them and help them to grow. How can you best consider your customers and evaluate their needs alongside the banking, technology and social trends that matter most? To support this process, FIS has conducted the latest PACE survey for the SMB market with full findings and country specific insights available here. In this piece, I now explore key reflections – with cultivating trust, the personalisation of experience beyond digital transformation and instilling the ‘human’ into relationship building as the key factors to building and retaining loyalty and satisfaction. 

Managing Consumer Churn  

Nurturing this sector is becoming a global business imperative for financial institutions especially as it has traditionally been underserved and competition is rising, including the pure play digital NEO banks that only serve SMB’s with services ranging from payments, tax and accounting to API driven marketplaces. The US FIS PACE 2019 insights also reveal a fall in satisfaction rates with an SMB’s primary financial institution compared to a year ago. It is no longer uncommon for SMBs to switch banks. 

Looking at the data overall there is evidence of ‘wallet spread’ and increased propensity for customers to review, change or diversify their banking relationships. An average SMB holds 2.64 banking relationships and over half of the SMBs surveyed have switched their primary financial institution, started using a new financial institution, or stopped using a financial institution in the past year.  

A combination of service fees and experiencing provision ‘pain points’ emerge as the leading factors contributing to customer churn. It is the companies in the $25M-$75M bracket that appear to be at most risk, with fees ranking as the number one reason for stopping or switching a banking relationship. This grouping also reported more pain points than any other group with over 50% of respondents citing issues. Key examples include: securing time to visit a branch, bill payment processing speeds and avoiding consequential late fees, accessing online/mobile services and identifying knowledgeable banking staff. Fees and incidence of point points also both correlated very highly with churn for those companies achieving over $75M.  

The Impact of Emergent Technologies  

As the banking ecosystem continues to evolve, advances in technology such as Artificial Intelligence and Robotic Process Automation are impacting the nature of customer, employee and investor relationships and long established metrics. As an example, ‘number of employees to revenue size’ are exact indicators no more. In fact, largely due to the impact of technology, of the firms surveyed in the US FIS PACE 2019 report that achieved between $25M-$75M revenue, over half have fewer than 100 employees.  

Widespread adoption of mobile technology is a key factor in banking transformation that transverses all sizes of SMBs with adoption moving from legacy (cash, cheque, money order) to electronic (cards, online, wire) and emergent (mobile, P2P) based on business activity type and size. The PACE results demonstrate that it is the $25M-$75M revenue category (Larger Small Businesses and Early Middle Market Businesses) that most emphasize the need for up to date banking processes/ products coupled with increasing use of electronic methods, while the over $75M group (Emerging Middle Market) demonstrates the highest acceptance of online and mobile payment alongside lowest utilization of P2P payments.  

Personalisation of Experience, People and Trust  

The ability to customize services and products whilst providing consistently high quality service matters – respondents cite good customer service as the number one reason for starting a new banking relationship. While technology advances and integration can play a key role in meeting customer needs, for example in terms of seamless access, streamlining and convenience, the ‘human factor’ remains significant. SMBs who have a relationship manager (RM) are more satisfied than those who do not and the value placed in / effectiveness of this relationship can enhance perceptions on bank trustworthiness and adoption of technology.  

Forty-five percent of SMBs with an RM believe the benefits of open banking outweigh the risks, compared to 27% of companies who don’t have an RM, and only 5% of companies with an RM are unsure, compared to 13% of those who don’t have the benefit of an RM. 

Bank ‘trustworthiness’ comes to the fore as a key differentiator to reduce churn, increase adoption and expansion into financial apps and open banking, whilst negating the growing threat of aggressive FinTech competitors such as the NEO banks. The key attributes of trustworthiness as identified by PACE respondents center on security, privacy and the nature of feeling valued as a customer. This aligns with a growing global need to restore and embed trust, as reflected by annual research by the Edelman Group.  

Alongside achieving effective partnerships between people and technology, the PACE findings also draw attention to user expectations around experience – and this goes far beyond the user interface. It requires a coordinated and proactive strategy, especially as many of the customer pain points highlighted, and which impact across revenue size groups, relate to user experience gaps.  

Banks must review, reflect and apply lessons from the advancing FinTech disruptors to enhance innovation, intuitiveness of product design, ease of service use and speed to market of new offerings. Consumers can then experience the best of both worlds – and done right, this can be within the single primary financial institution relationship that most banks aspire to achieving. Drawing on both industry experience and original research, I also anticipate that the demand for banks to do more within the community and for society, both from the perspective of employees and consumers, will start filtering into PACE insights from 2020 onwards. I look forward to revisiting that prediction.   

It is clear that banks are so much more than a money repository. Acting on the insights in the PACE 2019 research, and taking into account country contextual specifics, can help to reduce vulnerabilities by aligning policy, process, people and technology and so reducing the gap between consumer expectations and actual levels of satisfaction. Forecasting ahead, I also believe that social impact contribution will become a growing differentiator in achieving sustainable competitive advantage within financial services and beyond. There is clearly big business in small business which requires the listening, foresight and adaptability to continually change. This opportunity can be sustainably achieved and at scale – but only by banks truly becoming customer-first.  

Please feel free to share your thoughts below, or tweet  @sallyeaves  
And a reminder that the FIS Pace 2019 Reports can be assessed here.  

About the Author 

Dr. Sally Eaves is a highly experienced Chief Technology Officer, Professor in Advanced Technologies and a Global Strategic Advisor on Digital Transformation specialising in the application of emergent technologies, notably AI, FinTech, Blockchain & 5G disciplines, for business transformation and social impact at scale. An international Keynote Speaker and Author, Sally was an inaugural recipient of the Frontier Technology and Social Impact award, presented at the United Nations in 2018 and has been described as the ‘torchbearer for ethical tech’ founding Aspirational Futures to enhance inclusion and diversity in the technology space and beyond.  

Featured image: ©Burst