In the world of small business, banks are seen as an indispensable resource. A 2020 survey from Statista found that 99% of SMEs are currently working with a bank or a building society. If nothing else, this proves one thing – SMEs are fiercely loyal to their banks.
Unfortunately, it is often the case that this loyalty is taken for granted. Small businesses are perceived to rely on the traditional banking sector, and thus the banks themselves have little incentive to improve their service to better suit the needs of SMEs. There are many more modern, flexible, and accessible alternatives to traditional banks today, and SMEs should be taking advantage.
A personal touch
One of the biggest issues for SMEs relying on banks is how banks approach their relationship with businesses – namely, that they tend to view it in the same way they would a personal banking account. While banks may have fantastic data on the needs of different generations, they cannot apply this very successfully to commercial banking. Companies are not individuals and the “one size fits all” does not work when each one has a different business model, customer base. and cash requirements.
Small businesses, especially in the digital age, tend to have more dynamic operations. While its certainly true that many of them will still rely on banks for cash deposits, others will be totally cashless. Similarly, some will deal in international transactions frequently, while others won’t. Therefore, a financial provider specialising in services modern SMEs require – like foreign exchanges – will ultimately serve them better. Finance decision makers can work with their own account manager who understands the business and can tailor personalised banking services to that organisation’s needs.
Despite the fact that nearly all SMEs rely on traditional banking, they may not actually need banking services day-to-day. This opens the door to modern financial providers; SMEs can retain core banking services from traditional banks, while also leveraging a range of specialist services more relevant to their operations. Simply put, the SME sector is a diverse one and the blanket service offered by traditional banks normally fails to account for this.
A better onboarding experience
Another issue with traditional banking is quality of customer onboarding. Again, there is a lack of incentive for banks to invest in this kind of infrastructure, which results in inefficiencies all round. For example, just opening an account can be a lengthy process – sometimes taking weeks – and often involves archaic, inflexible processes such as visiting a branch in person to set up an account.
On the other hand, an alternative financial provider or fintech company can provide a much smoother (and shorter) account opening and onboarding process. While the traditional banking route may result in weeks of back and forth, opening an account with an alternative provider can be completed within a few minutes on a smartphone. This helps to reduce the anxiety business leaders often feel during the interim period when switching banks. A dedicated account manager will also ensure that the switch from traditional banking is painless and day-to-day business is not disrupted.
Innovative solutions for today’s companies
Historically, banks have been extremely successful institutions. However, this has resulted in a complacency and a strong desire to adhere to the structures and methods that brought them success. This translates into a sizable amount of red tape which greatly stifles their capacity to innovate and provide modern solutions for modern businesses. Moreover, holding greater capital reserves leads to lower profits. Therefore, banks will typically keep less on hand to increase their bottom lines – much to the detriment of SMEs’ liquidity requirements.
Conversely, the fintech sector is looking to innovate wherever it can. Additionally, fintech companies are much smaller entities than traditional banks, meaning fewer “levers” to pull overall. For SMEs, this is good news. Not only are they dealing with partners who seek to advance the financial frontier, but they can also be assured that their desires and needs will be listened to and acted upon at all times during the relationship.
This is a great opportunity for SMEs to properly think about what they need from a banking and expenses perspective. Many businesses have never considered the services alternative providers can offer them, or that they even had a choice. Banks are such omnipresent entities that it is easy to forget other options exist.
Giving SMEs the chance to flourish
Banks are incredibly successful – and historically reliable – institutions. However, their position is largely maintained by the “this is how we’ve always done it” approach. A generic commercial banking service does not consider the diverse needs of the SME sector. Additionally, banks themselves are slow-moving with heavy internal regulations and this limits the changes they can make. Using an alternative provider gives SMEs the opportunity to access services tailored to their business model and operations.
What is important to remember is that this can be supplemented with traditional banking if the business wants. The flexibility of the fintech provider means that it can offer its services in tandem with a bank – it is not an “either or” situation.