New research by Pollinate, an international SME digital banking specialist, shows that traditional banks’ services to SMEs are not commensurate with the sector’s economic importance.
Speaking to nearly 1,000 banking executives worldwide, Pollinate’s latest guide explored how traditional banks can accelerate the pace of change by focusing on harnessing the power of data to become a one-stop digital hub for SMEs.
Globally, the guidance outlines how traditional banks should:
Eliminate the reasons for the departure of SMEs
The guidance suggests that traditional banks should build on their own product and distribution strengths, delivering digital experiences at scale. While 65% of traditional banks say data is their strongest asset, more than one-third report losing customers due to a lack of data and insights.
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Targeted investments for maximum impact.
Acquiring can be the sweet spot for banking. For the 60% of traditional banks that consider “BigTech” their main competitor, owning customer data (in particular, both issuing and acquiring) can position banks as a strong competitor to this technology giant.
Rethink the “supplier” relationship.
Traditional banks must expand their relationship with FinTechs from supply arrangements to collaboration on a number of elements, from initial strategy to launching new products and services. About 36% of traditional banks are looking for partners who can provide strategic business advice, not just platforms or services.
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Most businesses in SA are SMEs
SMEs in South Africa account for more than 98% of businesses, employ between 50 and 60 percent of the country’s workforce across all sectors, and are responsible for a quarter of private sector job growth. Despite this, Pollinate data shows that traditional banks use only 20% of business bank budgets for SMEs. In addition, only 47% of banks will increase their investment in SMEs in the next financial year, while 11% of banks are expected to decrease their investment.
Fintech is taking on the challenge – traditional banks remain the biggest competition
The rapidly changing SME landscape has seen fintech companies rise to the challenge to provide the digital solutions the sector needs. Traditional banks, often held back by red tape and outdated structures, are struggling to keep up – 22% of traditional banks say Fintech is their biggest competition when it comes to serving SMEs.
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This has caused jitters across the industry, with banks often opting to partner with or acquire fintech companies instead of building their own solutions. In South Africa, 22% of traditional banks partner with fintech companies to build specific digital solutions from scratch, compared to 50% of challenger banks. Traditional banks are also more likely to purchase financial technology (25%) compared to challenger banks (17%).
Reduce cognitive load for SMEs
Fiona Roach Canning, co-founder and president of Pollinate, said: “SMEs are fundamental to society and the economy. The race for customer dominance is to become the one-stop digital hub for SMEs to manage and grow their business.”
“SMEs are fundamental to communities and economies around the world. Reducing the cognitive load for these companies is key to their growth. They need a central hub to manage and grow their business – and banks have all the assets to be that one-stop shop.”
*Information and recording provided by Pollinate.