The SMB market (small and medium-sized businesses) is an important, but often underappreciated, customer segment for banks.
According to the International Finance Corporation, there are 125 million companies in the world of which 99% are SMBs. These SMBs contribute a staggering 49% of global GDP. The last major report into the state of the SMB market on a regional basis, a 2012 EC report, highlights that even in the aftermath of the financial crisis the total number of SMBs steadily growing, with each business on average increasing its total number of employees.
More recently SMBs have developed an international mind-set. Research from Oxford Economics across 21 markets reveals that SMBs expect international revenues to grow from 40% to 66% in the next three years, while those doing business in at least six countries will jump 129%.
This growth and expansion presents an opportunity for banks looking to provide the advice, guidance and tools to support these businesses. Furthermore, SMBs tend to stay with their bank for long periods of time. BCSG research indicates that the majority of SMBs have held their business banking account with the same provider for more than five years.
However, it is also broadly true that the SMB segment is underserved by banks, reflecting the risks associated with the sector. In a recent survey, businesses across the SMB spectrum gave banks an average satisfaction score of 62%. SMBs as a market segment fall between the consumers most banks see as their bread and butter, and the huge corporate behemoths that demand specialist accounts and bank services. SMBs, on the other hand, have had to make do with a kind of ‘personal account plus’- almost the same services as personal customers but repackaged for the SMB market.
SMBs in Australia
95% of all Australian businesses are SMBs. They are not only one the most significant segments of its business landscape, but a vital part of the nation’s economy. The success of small businesses is often used by the media as a barometer of the state of the nation’s finances.
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However, most new businesses have trouble finding success, with the majority failing to reach their third birthday. This is mainly down to a few key challenges currently facing SMBs including finding new customers, managing finances, and navigating through all the necessary paperwork to set-up their business.
Research has also shown for SMB owners that some of the risks to their success include lack of time (27%), lack of support (21%) and lack of funding (21%).
Banks need to support the small business sector, not only as a way of retaining their custom, but because the success of small businesses has a direct impact on the financial wellbeing of their other customers, both personal and corporate.
A new approach
Westpac has always been a leader with regards to serving SMBs and recognised there was the need to change approach – especially around digital. Businesses that do not do much of their business management online are increasingly rare, these services need to be delivered in a cost-effective, online manner.
For SMBs to thrive they must have access to the guidance, insight and tools that allow them to focus on the important parts of running their business, rather than focusing on issues of admin and day-to-day finance. Many are in business for the first time – or transitioning to digital tools for the first time – and will come across unfamiliar situations and have little idea how to deal with them. For example – how do you manage an expanding number of customers? How do you make sure all the legal requirements are covered when employing new staff? How do you deal with international payments?
State-funded organisations and government-sponsored websites provide this information and point to the available tools, but they are limited in number and adoption.
Westpac relies on its SMB customers thriving, and so, with the help of BCSG, has launched its new service: MyBusiness Assist. The relationship between banks and its SMB customers is set to fundamentally change in the next decade, and MyBusiness Assist is designed to address this shift. In many ways, some banks are stuck in an old model of working, where the bank provided an account, made decisions on lending based on a business plan, set up some standard bank services, and the rest was up to the fledgling small business. This may have been acceptable when small businesses could rely on passing trade and word of mouth to succeed, but a digital world demands a different approach.
Doing digital differently
MyBusiness Assist is a suite of non-financial services tools delivered via the cloud to help improve day-to-day business management. For example, it has a tool that can help write and formalise a business plan in order to transform a nebulous idea into something viable. It also has the tools to track finances, process invoices, and manage accounts. Other packages can help to set up a website and create the legal documentation necessary to run a business and remain compliant with legislation.
Thus, Westpac connects small businesses with the tools they need, and this complements other business services it offers – Local Business Bankers and a network of "Connect Now" business specialists who offer an all in one appointment for SMBs via video conference. These services give advice to small businesses, make sure that new business owners avoid falling into traps which could be easily avoided and that they understand all the services and support available to them.
At the heart of this is a changing relationship between the bank and its SMB customers. Banks need to move away from simply being a provider of everyday banking services, away from the basic transactional relationship that has long been the standard. The way we do business has changed and the traditional bank account is no longer a compelling reason to remain with a bank.
Instead, engagement with the customer is now far more important. Banks need to have a deeper understanding of what customers need and look to provide it, rather than rebadging consumer services and hoping that SMBs won’t notice. This ‘engaged’, rather than ‘transactional’ approach, will mean that SMBs are no longer an awkward, underserved category, but a loyal, profitable part of the customer base.
Julie Rynski, Westpac General Manager, and Paul Wenck, Managing Director Australia and New Zealand, BCSG