A digital approach to SME banking

Years of low interest rates, difficult consumer, corporate, and investment banking business conditions, and a tricky macroeconomic environment have squeezed many core areas of business for banks. In this context, previously overlooked segments are worth revisiting. Small and medium-size enterprises (SMEs) in Europe represent one such opportunity for banks seeking to grow. European Central Bank (ECB) data highlight that for 20 percent of SMEs in Europe, access to financing is their most urgent problem. The same data shows that one in five SMEs is unable to access the credit it was planning to use.

Despite the demand, the opportunity remains elusive for banks, which have struggled to serve SMEs successfully. The challenges from a bank’s perspective are many: smaller business clients demand a higher intensity of bank attention with limited returns—and a higher (perceived) cost of risk. Even quite small businesses can have complex and rapidly evolving needs, along with an unsteady risk profile; and yet, they often expect premium service. And there is no one-size-fits-all approach banks can apply to these clients, given the variety of needs, business types, and decision makers.

Structurally, SMEs as a group fall between the cracks of retail and corporate banking, so from a banking perspective, there is often no natural organizational “home” for them as clients. SMEs also represent a broad range of business sizes: those at the micro end of the segment share similar dynamics to a personal or affluent consumer, while those at the larger end have profiles and requirements more aligned with commercial-banking clients. This uncertainty is illustrated by the fluidity of many banks’ “organigrams,” whereby the SME business is pinned, and re-pinned, to different parts of the business—finding a home in neither the retail nor the commercial-banking segments.

However, while many of the challenges outlined above will continue to be a factor for banks considering serving the SME segment, banks now have access to tools and capabilities that can alter the equation to a point where SMEs can be served well and also served profitably.

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