# Why SMEs are the number one market opportunity in digital banking Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2019-03-28 Category: BANKING Category URL: https://financedigest.com/category/banking Meta Title: How Banks Can Drive Growth in the SME Sector Post-Brexit Meta Description: Explore the potential of UK SMEs in driving economic growth post-Brexit, and how banks can leverage new technologies to provide efficient financial services. URL: https://financedigest.com/why-smes-are-the-number-one-market-opportunity-in-digital-bankinghtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/h54159221-1160x753-1-1736839087097-compressed.jpg) By Sudeepto Mukherjee, SVP and head of financial services at Publicis Sapient, and Pawan Udernani,digital transformation lead, financial services, at Publicis Sapient With the Brexit negotiations reaching a critical stage, the UK is under greater pressure than ever to do all it can to improve productivity and drive economic growth. Against this backdrop, the SME sector is becoming a major focus for the government because of its potential impact on both the economy and society. The Federation of [Small](https://www.financedigest.com/pakistan-floods-add-to-pain-for-struggling-small-businesses.html "Pakistan floods add to pain for struggling small businesses") Businesses estimates that SMEs accounted for 99.3% of all private-sector businesses at the start of 2018 and employed 16.3 million people, or 60% of all private sector employment in the UK. Aggregate annual turnover of UK SMEs was £2 trillion, 52% of the private sector total. No matter what the outcome of Brexit, the ability of this sector to grow will largely define the prosperity of post-Brexit Britain. Despite representing a huge market, the SME [sector has always been hard for banks](https://www.financedigest.com/improving-reputation-in-the-banking-sector-through-marketing-communications.html "IMPROVING REPUTATION IN THE BANKING SECTOR THROUGH MARKETING COMMUNICATIONS") to serve efficiently. There are many reasons for this, including the diverse types and needs of [small businesses](https://www.financedigest.com/government-assisted-financing-schemes-for-small-businesses.html "Government Assisted Financing Schemes For Small Businesses") (a clothing manufacturer is very different from a furniture maker, for example), the sector’s price sensitivity and its geographical spread. However, the combination of the Brexit imperative and the availability of new technologies creates a huge opportunity for banks to make a meaningful contribution to raising productivity and [growth in the SME sector by providing rapid](https://www.financedigest.com/rapidly-growing-end-use-industries-worldwide-is-providing-traction-to-the-13-dioxolane-market-growth-fact-mr-report.html "Rapidly growing End-use Industries Worldwide is Providing Traction to the 1,3-dioxolane Market Growth: Fact.MR Report"), frictionless access to capital and credit. [Digital technology provides tools to reach customers](https://www.financedigest.com/the-advanced-wound-management-technologies-market-to-grow-based-on-customized-digitization.html "The Advanced Wound Management Technologies Market to grow based on customized digitization") at lower cost and deliver services very efficiently. This in turn frees up the [bank’s capital to allow it to serve the market](https://www.financedigest.com/in-a-rising-market-are-banking-outsourcers-pulling-their-weight.html "In a rising market, are banking outsourcers pulling their weight?") better. There is an important opportunity for banks here, but also a necessity. They have historically [focused on larger corporate customers as their main market](https://www.financedigest.com/powder-dispenser-market-market-2019-2029-where-should-participant-focus-to-gain-maximum-roi.html "Powder Dispenser Market Market (2019 – 2029) | Where Should Participant Focus To Gain Maximum ROI ") – a strategy that worked well before the financial crisis when the global economy was growing strongly. Since the crisis, slower [global growth](https://www.financedigest.com/london-stocks-fall-1-on-weak-global-growth-outlook.html "London stocks fall 1% on weak global growth outlook") has put the spotlight more on the health of domestic economies. In [almost every advanced economy](https://www.financedigest.com/uk-economy-almost-flat-lined-in-october-adding-to-rate-hike-doubts.html "UK economy almost flat-lined in October, adding to rate hike doubts"), therefore, SMEs, which are overwhelmingly domestically focused, now represent an important lever to increase total factor productivity and therefore gross domestic product. On the upside, there is much to play for: SMEs represent a [growth segment with unmet needs that is forecast](https://www.financedigest.com/cold-start-system-market-analysis-size-share-sales-growth-forecast-segment-application-analysis-2021.html "Cold Start System Market Analysis- Size, Share, Sales, Growth, Forecast, Segment, Application Analysis 2021") to contribute £241bn to the UK economy by 2025, a 19% increase from 2018. Can banks grab this opportunity? For the winners, success will not only help increase their return on equity, but also help them to regain public credibility and trust by proving they can be a catalyst for growth and prosperity. In the retail banking segment, the leading banks have been largely on the backfoot, playing catch-up with fintechs and major digital companies such as Google and Amazon that are setting the benchmark for [customer experience](https://www.financedigest.com/financial-services-is-upping-its-customer-experience-game.html "Financial services is upping its customer experience game") and value. The pressing need for banks to reclaim [leadership in the SME and broader corporate](https://www.financedigest.com/corporate-leadership-understanding-your-own-bias.html "Corporate Leadership: Understanding Your Own Bias") segment is clear. In Publicis Sapient’s work with leading banks and investors, we have seen a real opportunity not only to offer new value propositions but also to reimagine current offerings to implement some very [innovative digital](https://www.financedigest.com/the-cellular-imaging-market-to-show-an-inclination-towards-digitized-innovation.html "The Cellular Imaging Market to show an inclination towards digitized innovation") centric products that can transform the experience of SMEs in areas like onboarding, lending and trade finance. Here are some focus areas that can help banks [unlock SME growth](https://www.financedigest.com/digitalisation-can-be-the-key-to-unlocking-growth-in-audit.html "Digitalisation can be the key to unlocking growth in audit") and productivity: First, they need to adopt a customer-led approach to providing products and services. Historically, banks have been organised around products – they have separate departments for lending, trade finance, cash management and so on. But SMEs don’t want to have separate conversations with multiple departments. The traditional, product-centric structure of established banks makes it very difficult for them to cater properly for the diverse needs of the SME segment and [create a compelling customer experience](https://www.financedigest.com/customer-experience-creating-the-calm-in-the-chaos.html "Customer Experience: creating the calm in the chaos"). Even the process of taking out a loan can vary widely, depending on the type of business seeking to borrow. Being customer-centric could also mean that banks might have to diversify their [services to ensure they can meet the end-to-end needs of the SME market](https://www.financedigest.com/car-rental-service-market-is-forecasted-to-grow-at-a-7-2-cagr-by-2031-comprehensive-research-report-by-fmi.html "Car Rental Service Market is forecasted to grow at a 7.2% CAGR By 2031- Comprehensive Research Report by FMI"). In most cases, SMEs are looking to reduce complexity and deal with fewer providers – banks can facilitate this by [offering a broader set of services](https://www.financedigest.com/barclays-sets-up-taiwan-subsidiary-to-offer-brokerage-services.html "Barclays sets up Taiwan subsidiary, to offer brokerage services") that would be attractive to a larger base. This could involve leveraging their partner network, for example to provide essential services like tax, invoicing and even property maintenance. But it could also involve the creative use of their own IP to benefit their customers, for example in providing digital authentication services, fraud [detection and even IT provision such as access to cloud and network](https://www.financedigest.com/closing-the-door-before-the-horse-bolts-developing-a-proactive-network-detection-and-response-ndr-strategy.html "Closing the door before the horse bolts: Developing a proactive network detection and response (NDR) strategy ") infrastructure. [Banks need to leverage digital](https://www.financedigest.com/how-to-enhance-banking-services-with-digital-performance-intelligence.html "HOW TO ENHANCE BANKING SERVICES WITH DIGITAL PERFORMANCE INTELLIGENCE") technologies to reduce costs and add value. Modern tools and techniques are finally making it possible to serve the vast SME customer base at lower cost. This potentially allows [banks to deal with complex cases like loan](https://www.financedigest.com/ant-group-starts-to-differentiate-consumer-loan-business-jiebei-from-bank-loans.html "Ant Group starts to differentiate consumer loan business Jiebei from bank loans") defaults, cross border disputes, bankruptcies and so on without raising the cost for all customers. We already see [banks exploring Artificial Intelligence](https://www.financedigest.com/artificial-intelligence-in-banking-robo-advisors-and-beyond.html "Artificial Intelligence in Banking – Robo Advisors and beyond") technologies, for example to allow faster onboarding of customers, automated credit checking and algorithmic predictions of defaults. These are all exciting use cases, but most are still at the proof of concept stage and are not being applied at scale. Techniques like these need to break out of banks’ innovation centres and take their place at the heart of the [value chain](https://www.financedigest.com/the-potential-impact-of-coronavirus-covid-19-for-riveting-tools-market-revenue-opportunity-forecast-and-value-chain-2021-2028.html "The Potential Impact Of Coronavirus (Covid-19) For Riveting Tools Market Revenue, Opportunity, Forecast And Value Chain 2021-2028"). Modern approaches like agile and design thinking also drive innovation and speed of execution. [Banks need](https://www.financedigest.com/traditional-banks-need-an-overhaul.html "Traditional banks need an overhaul") to embrace them to make a meaningful difference. They must also standardise their processes. [Basic operations](https://www.financedigest.com/back-to-operational-basics-with-analytics.html "Back To Operational Basics With Analytics") like Know Your Customer data-gathering or arranging a Letter of Credit can be hugely time consuming and frustrating for customers because every institution does it differently and the process usually involves a lot of manual document checking. [Industry groups and government must work with banks](https://www.financedigest.com/enabling-decision-making-success-in-the-banking-industry-3-considerations.html "Enabling decision-making success in the banking industry – 3 considerations") and SMEs to streamline this. We have already seen this happen in areas like derivatives clearing and FX settlement – it needs to happen in SME banking. Standardising processes will not only make the banking [supply chain](https://www.financedigest.com/how-can-businesses-digitalise-supply-chains-to-meet-demand.html "How can businesses digitalise supply chains to meet demand?") more efficient, it will also enable institutions to realise much greater value from the huge quantities of data they hold on SMEs. Data fuels the [digital economy](https://www.financedigest.com/feature-africas-mobile-money-taxes-risk-driving-poor-out-of-digital-economy.html "FEATURE-Africa’s mobile money taxes risk driving poor out of digital economy") but it can be used effectively only if it is available in standard formats. Standardising data around identity, transactions, invoices and so on will make it much more valuable for all parties. The more usable [data banks](https://www.financedigest.com/asia-shares-edge-higher-wary-of-us-bank-data.html "Asia shares edge higher, wary of US bank data") can access, the more they will be able to use sophisticated models to enable rapid onboarding and loan underwriting. One of the [key reasons banks](https://www.financedigest.com/russia-bans-western-investors-from-selling-banking-key-energy-stakes.html "Russia bans Western investors from selling banking, key energy stakes") have traditionally concentrated on large corporate customers is because there is a large amount of publicly available information on them, which reduces the risk of lending to them. The relative lack of information on SMEs has led to banks regarding them as higher risk, resulting typically in higher [interest rates](https://www.financedigest.com/london-stocks-slip-ahead-of-key-interest-rate-decisions.html "London stocks slip ahead of key interest rate decisions") or no offer of finance. Access to more information on SMEs via their [digital footprint will give banks](https://www.financedigest.com/how-will-the-introduction-of-digital-banking-impact-customer-perception-and-overall-loyalty.html "HOW WILL THE INTRODUCTION OF DIGITAL BANKING IMPACT CUSTOMER PERCEPTION AND OVERALL LOYALTY?") a better view of the risks and makes the market more easily and efficiently addressable. Fintechs such as SME-focused bank Oaknorth are already showing the way. These may seem like straightforward fixes but they are extremely difficult to implement because of banks’ legacy systems, product-centric structures and poor understanding of the power of technology. To succeed, [banks need to redesign their services to put the customer](https://www.financedigest.com/change-is-inevitable-how-banks-need-to-adapt-to-customers-new-banking-habits.html "Change is inevitable – how banks need to adapt to customers’ new banking habits") at the centre. Leading providers in other sectors, like Netflix or Domino’s, have used technology to create a stronger proposition and better experiences for their customers. Why not in banking too? Ultimately, [digital can improve the productivity of banking](https://www.financedigest.com/being-the-best-digital-bank-is-not-enough.html "Being the Best Digital Bank is Not Enough") for SMEs, and that in turn can improve the productivity of SMEs themselves – to the benefit of the whole UK economy. The change requires investment, certainly, but will pay huge dividends if it [drives customer acquisition](https://www.financedigest.com/rationalfx-drives-customer-acquisition-with-regtech-platform-from-trunarrative.html "RationalFX drives customer acquisition with RegTech platform from TruNarrative") and growth. Major UK [banks have the capital](https://www.financedigest.com/be-simple-in-bank-capital-bank-of-england-tells-global-regulators.html "Be simple in bank capital, Bank of England tells global regulators") and the reach to do this – what they also need is strong leadership and strategic intent. Taking this path will ensure that whatever headwinds await post-Brexit Britain, we will have stronger [growth and higher](https://www.financedigest.com/short-bowel-syndrome-market-higher-growth-rate-forecast-2020-2030.html "Short Bowel Syndrome Market Higher Growth Rate & Forecast 2020 – 2030") productivity to help us deal with them. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---