The SME market is a big opportunity for the banking sector, so why isn’t it being utilised?

Posted on: 01/06/2018

SMEs contribute £200 billion to the UK economy, which is expected to rise to £240 billion by 2025, presenting many opportunities for the future wealth of the economy. So why is it that the big banks are currently neglecting SME demands?

Research by PwC found that SMEs would prefer access to digital services as opposed to traditional in-branch facilities, however these needs are not being met. Below are the key reasons which prevent the banking sector from fulfilling the demands of SME businesses:  

  1. The onboarding process of initiating relationships with SMEs can be challenging for banks, due to uncertainty around the ownership structure of these small businesses.
  2. The growth model of SME businesses means it is difficult for banks to assess the value of the opportunities they are presented with.  With smaller businesses seen as a higher risk for doing business with, this causes issues for banks when granting credit facilities.
  3. Profitability from doing business with SMEs is a lot smaller than that of larger organisations, therefore making corporates more favourable.
  4. Existing software systems means banks are unable to service SME customer demands which are beyond the traditional offerings, pushing SMEs to look elsewhere for their needs.

The impact of underserving SMEs

With many challenger banks entering the scene, the impact of underserving SMEs could be quite severe. Many SMEs are now seeing the value of choosing challenger banks over the traditional high street players, meaning banks will slowly be losing out on their share of the market.  It is inactivity that is holding them back from capitalising on the SME market; they must be open to collaboration with the new players and champion open banking if they are to tap into this market, or risk losing their relevance and share in the market entirely.

Achieving service differentiation with Exemplas

At Exemplas, we work with clients in banking and fintech, who have pre-start, startup and SME clients, to enhance their service propositions, helping them to set their business apart. Our advisory services provide customers with added value, which in turn enables client acquisition and retention.

Find out more about how we work with the private sector.

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