Banking used to be a steady stalwart of corporate life. However, the banking sector has transformed almost beyond recognition over the last ten years, and there is no sign the disruption is coming to an end.
The way we see corporate banking has entirely changed from its past, and most likely from its future. It’s entirely possible that the way we see it in another ten years will be different still. The fact remains that, in its rush to transform and digitise retail banking, many banks have lost focus on ‘bread and butter’ clientele – corporate clients.
Lack of digital strategy
Corporate clients represent more than 55% of the total global revenue for the banking sector. Despite this, around half of all corporate banking franchises have little to no digital strategy. This clear neglect of such an important revenue stream is surprising, given its future potential for banks.
It’s further surprising when we consider that this sector is one that other companies are eager, ready and willing to fill. Although the demand for SME finance is massive and growing all the time, the total credit gap for SMEs is estimated at US $1.2 trillion. And this is there for the taking.
Intense competition
The banking sector has been somewhat democratised by the second Payment Services Directive (PSD2), which was launched January 2018. This has opened the door to huge competition for the corporate banking sector, which is being enthusiastically chased by Fintechs, tech giants and digital-first challenger banks.
All of these disrupters are constantly working to find a way to get a foothold and longstanding market niche in financial and trade advice, as well as payments. SMEs are turning to Fintechs to handle foreign exchange, front up loans or for financial advice.
Research shows that 68% of small businesses are quite happy to look outside of traditional banks for financial services, and more than 50% are prepared to switch banks when they don’t get the service they expect.
User-driven market
The entire survival of a small business is predicated by the financial support they can secure. Today’s corporate world can no longer rely on blind loyalty from small business customers, as they can and will go elsewhere to get the fast results they need for their future growth.
It is becoming simpler all the time for business customers to change accounts and move over to other providers. All of which means banks must quickly position themselves as a vital part of a small business’s growth plan. By understanding what SMEs need, banks can begin to restore their reputation as vital sources of financial advice and money for this sector.
What’s important to SMEs?
For example, the most vital issue facing a typical small to medium sized business is cash flow. They must balance the daily running of their business with the administration required, meaning that they need fast and simple access to cash.
Some SMEs can struggle to track and forecast their cash flow accurately, as it needs specialist knowledge. To save and maintain these kinds of relationships, banks are finally seeing that they need game-changing technology solutions. Citibank is the first major bank to join the Open Banking framework in the UK to give its business customers the option of an aggregated payments collection service.
Automation improves efficiency
An increasing number of banks are setting targets to automate their services more efficiently. This will streamline processes for customers, speeding up transactions and making processes simpler.
A good example comes with onboarding. Traditional banks have lots of red tape and historical steps that can take weeks to sort out, but challenger banks allow business owners to set up accounts within minutes on their smartphone. This is the kind of access traditional banks need to grant to their corporate customers to stay in the game.
Digitising banking improves the relationship between the financial institution and the client by allowing much more flexibility and speedier response times. One international bank found that automated processes reduced errors by 99.98% year on year, and boosted efficiency by 15%.
Diversification of service providers
UK small businesses will continue to diversify their sources for foreign exchange, fund control and loans in the same way that consumers use multiple providers for different services to eliminate the problems working with a single bank.
Banks must provide a higher level of customer satisfaction if they want to go back to the days of having a monopoly on the financial needs of small businesses. However, they are now moving faster to integrate cash management, financial accounting, invoicing and reconciliation in a bid to provide what SMEs want.
James Turner, managing director of turnerlittle.com said: “Banks are looking to leverage their established customers and are clearly working towards offering small businesses in this country a multiple channel banking experience. Older and established banks are now in the position where they have no choice but to take their lead from the fintech and challenger banks and react to the industry wide disruption that shows no sign of abating.
“If banks can refocus their efforts on digitising products for small business owners, this will help to show business owners that banks can still be relied on as a single source of financial services. As long as the competition keeps pushing the digitisation envelope, and the traditional banks continue to innovate, it’s all good news for small businesses.”
Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.
