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HOW TO WIN OVER SME CUSTOMERS IN TODAY’S BANKING WORLD

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By: Pim Koorn, director of business banking at Backbase

 

Small and medium-sized enterprises (SMEs) are operating in a fragmented banking environment, and it simply isn’t serving them. On a day-to-day basis, SMEs are tapping into a wide range of apps and services to meet their financial needs. From banking and bookkeeping to payroll services, expense reconciliation to accounts payable and receivable, few SMEs have access to a single dashboard offering a comprehensive view into their financials – something that should be table stakes for today’s digitally savvy entrepreneurs.

Banks are uniquely poised to solve this problem. They should be the common thread tying all their SME customers’ financial needs together, but banks are starting from a deficit in regards to customer perception: According to 11:FS, only 18% of SMEs believe banks provide all the services necessary to effectively run their finances.

So, what’s a bank to do? Stop thinking like a bank and start thinking like a technology company.

 

A roadmap to outstanding SME customer service

One of the core tenets of serving the SME customer is identifying how to make their lives easier so that they can focus on growing their business. SMEs don’t want to have to open multiple browser tabs or apps to piece together the full picture of their financial functions, nor do they have the time to interface with several different customer service operators to answer all their questions.

 

Pim Koorn

Here are the four key steps banks must take to help reduce bottlenecks and inefficiencies for their SME customers:

  • Identify the services SME customers most often use and need. The first step in serving the customer is truly understanding their needs. Banks should conduct an audit of their SME customer base to not only understand which of the bank’s services they’re using, but also which third-party apps, technologies and other services they use to support their financial functions. This can help banks get a view into what their customers need, and whether they themselves have the technology in place to become the central hub for all those needs.
  • Prioritize the right technology. The next step in becoming an SME’s holistic financial services partner is investing in the technology – apps, cloud services, data analytics, and so on – that will allow the bank to function as a one-stop-shop for customers. While this step may seem obvious, this is where many financial institutions veer off-course, layering new technology on top of legacy systems – which creates untenable complexity when trying to serve fast-moving SME customers. Instead, banks must seek solutions that help break down siloes between different banking departments, so that customers can have a singular experience no matter which element of the bank they’re interacting with. The right technology will also play well with the various third-party functions SME customers need to run their businesses.
  • Equip employees with the tools they need to deliver for SME customers. Technology alone cannot deliver the integrated experience SME customers need. Banks must evaluate whether they have the tools, technology and services in place that actually empower their employees to provide outstanding customer service. This means identifying where employees lack adequate visibility into their customers’ needs, as well as where interdepartmental siloes create roadblocks.
  • Continuously deploy improvements. Finally, once banks have all the pieces of the puzzle in place – knowing what their SME customers need, building the single platform to meet those needs, and ensuring employees are tapped into that platform as well – they must maintain that high level of service, and frictionlessly. This means staying ahead of the curve and making continuous upgrades to their platform without the customer even noticing, including supporting new third-party apps and integrations, offering new in-app services, and ensuring the user experience remains seamless. It is also critical to resolve any glitches in a timely manner to avoid damaging service interruptions.

 

Is the juice worth the squeeze?

Making any sort of massive technology investment as described above will be an expensive undertaking. However, there are two benefits for banks considering taking the leap.

First, offering a single-platform experience to SME customers will help banks compete for this lucrative business, in addition to retaining existing customers who might otherwise be inclined to work with other providers for their various financial needs. Moreover, as those SME customers grow their businesses, so do their banks.

The second benefit is that a heavy upfront investment pays off over time. Investing in the technology to build a single, integrated financial services platform should be viewed as a capital expense – one that may seem hefty when it’s made, but will ultimately reduce costs and help the bank become more nimble, flexible and innovative over time. It isn’t just a cost of doing business; it’s an investment in longevity.

It’s also important for banks to remember that they aren’t in this endeavor alone, making the task and investment not as daunting as they might initially believe. Managed services partners can help provide the tools and expertise necessary for banks to think like a BigTech company – without needing to completely shift their infrastructure and operations to actually become one.

Banks have, for the most part, successfully made the leap towards becoming digital-first businesses, offering apps, paperless account services, and some level of digital onboarding for new customers. But in order to truly thrive in a rapidly accelerating – and increasingly competitive – world, they must begin to view themselves as a technology provider, as well. This crucial shift in mindset is what will help them meet the ever-growing demands of the SME client.

 

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Banking

TO ENABLE BETTER LENDING FOR PEOPLE AND BUSINESSES, WE HAVE TO LOOK TO OPEN BANKING

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By Iain McDougall, CCO of Yapily

 

A recent FCA study found over 14 million people were grappling with financial issues at the end of 2020, representing more than a quarter of the UK adult population. The picture is similarly tough for SMEs, too, which have been impacted hugely by lockdowns, loss of earnings and more; it’s estimated the pandemic will cost SMEs an extra £173,000 in debt per year.

This is resulting in a lack of lending options for both consumers and businesses, as well as expensive or high interest loans, or worse, rejection from lenders all together. This in turn is driving unaffordable lending, and penning consumers and businesses in an ongoing and irresolvable debt cycle – at a time when they need the most support.

One of the biggest causes of this lies in lenders relying on credit scores and credit bureau data to inform their decisions, which simply aren’t accurate enough to truly get the full picture of a borrower’s financial situation.

The case for using Open Banking data in lending decisions has never been stronger.

Data accessed through Open Banking permits lenders to retrieve accurate information about the borrower’s financial history. This can provide more accurate assessments, and therefore enable fairer lending decisions.

 

Credit scores aren’t helping consumers

Take NHS workers as an example. Despite working tirelessly throughout the pandemic, NHS workers make up a sizable portion of the UK adult population currently struggling with debt.

Iain McDougall

An independent report from the University of Edinburgh Business School, in partnership with Salad Projects, found NHS workers are heavily reliant on long-term overdrafts and high-cost credit, where APR is as high as 1,333%. Almost all (93%) respondents said they use one or more types of credit or loan, compared with 75% in the wider UK population (according to the Financial Lives Survey). More than half (58%) use up to three loan providers and 68% use up to four loan providers.

This situation is the result of relying solely on credit scores. While these are the near-universally accepted method of determining credit terms, each credit reference agency has a different method for calculating a credit score. They rely solely on financial history, whether they’ve previously defaulted, or failed to get credit, and not a consumer’s actual financial position, whether they’ve recently got a pay rise or new income, to see how likely it is they will pay back any money borrowed. This can mean, no matter if a consumer’s financial position has changed, they can’t get a better loan because of a previous discrepancy.

 

The challenges facing SMEs

These issues are not just limited to consumers. SMEs, particularly those in the hardest hit industries like hospitality and travel, have struggled to access credit throughout the pandemic.

While many may have been thriving pre-pandemic, their lack of ability to turn a profit during lockdowns, meant they needed extra support. In an effort to keep these industries alive, we saw numerous government backed loan schemes launched, such as the Bounce Back Loan Scheme, to help struggling businesses survive. In total, these schemes have provided almost £180 billion worth of lending to date, supporting over a quarter of businesses in the UK.

However, the soaring demand from businesses in need of these vital funds meant lenders were unable to keep up and many businesses did not receive support quickly enough. What’s more, providers may register these types of loans with credit reference agencies, which means companies that previously had strong credit ratings may see their credit scores negatively affected by any delayed or missed repayments.

This is why it’s vital for lenders to get lending limits right the first time round, so SMEs can avoid potentially adding to their already growing list of debt and thrive in a post-pandemic world.

 

Enhancing lending with Open Banking 

Using Open Banking can add a much-needed layer of trust and loan personalisation for businesses and individuals. By basing credit decisioning on real-time financial data, lenders will be able to create a more accurate picture of their financial situation; and so make fairer credit offers.

Through adopting Open Banking principles, lenders will be able to onboard new customers and grant loans more efficiently, providing businesses with the cashflow required to maintain their workforce and support the economy.

With the borrowers’ consent, it will also give lenders oversight into how the economy is recovering, and enable them to monitor the rate at which the individual or business can expect the loan to be repaid. Meaning they can step in and provide extra support if and when required.

Open Banking provides what credit scores alone simply cannot – real-time insight into an individual’s or a businesses financial position right now, not three to six months ago. By leveraging the data that is readily available to them, lenders could achieve far better and more responsible outcomes. This will reduce the risk of loan default – for both businesses and individuals – and lead to more responsible lending decisions that can help people and businesses bounce back after what has been a difficult year.

 

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Banking

BRAND CONFIDENCE: HOW HAS OPEN BANKING EVOLVED AND DO CUSTOMERS TRUST IT?

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By Geoff Boudin, Director at Revive Management

 

The open banking industry is growing by 24% year-on-year, and is expected to be worth more than £31 billion by 2026. The implementation of the 2018 Payment Services Directive known as PSD2, was intended to boost competition in the name of open banking. The directive, which set out to make payments more secure, by requiring banks to share the data of customers who authorise it with third parties. This allows customers to share their financial information with authorised service providers such as budgeting apps and other third-party money management tools. It was initially called for by the Competition and Markets Authority (CMA) to level the financial playing field and empower consumers by giving them more ownership over their financial data.  So, two years on, what impact is open banking having on consumers? Do they trust it? If so, how can brands build on this trust to offer more a more personalised yet non-intrusive experience that delivers the data to further improve their service offering.

 

What difference has open banking made?

Prior to PSD2, which came into force on 13 January 2018, banks had full authority and jurisdiction over their customers’ financial data. The idea of a bank giving up some of that data to a third party for the benefit of their customers was unheard of. This closed ecosystem, however, runs against the drive towards digital openness, connectivity and convenience. Our digital worlds were opening up and data was becoming democratised, and banks were being left behind. Challenger banks such as Monzo and Atom, which embraced innovative new apps and features, had been making headway for years, and there was a sense that third-party customer-focused innovation was rumbling away under the surface. However, that innovation was stifled until PSD2 laid a path for it, requiring banks to open up access to customers’ data at their behest.

It’s thanks to PS2D and open banking that customers are now able to connect their bank account to a third-party app that can help them better manage their money or sign up to a platform that allows them to access all of their accounts and credit facilities in one place. This allows customers to control their finances as never before.

 

Driving innovation

Empowering and improving the customer experience is one great achievement of open banking. Another is the innovation it has prompted across the entire financial sector. Even traditional banks like HSBC prepared for PSD2 by rolling out its own ‘Connected Money’ app, which allowed its customers to view data from all of their bank accounts – as well as mortgages, loans and credit cards – all in one place. This value-add to the customer experience probably wouldn’t have seen the light of day if not for the competition spurred by PSD2 and open banking. Many other banks and financial services providers have followed suit, offering new customer-centric features based around convenience, visibility and control.

Open banking is a huge step forward in the financial world. So why do some still liken it to a sleeping giant? What’s holding it back?

 

Managing trust and data security

More than 2.5 million consumers in the UK are now happy to connect their accounts to trusted third parties in exchange for some value-added benefit. That’s up from 1.5 million in 2020, no doubt driven by the competitive innovation brought about by PS2D. However, open banking adoption across the rest of Europe seems to have been much slower, and even growth here in the UK is beginning to plateau. While some might blame this on Brexit-induced regulatory changes, such as UK firms no longer being able to use the EU’s certification standards to share customer data after June 2021, there is much more at play.

A Europe-wide survey by thinktank ING polled 13 countries – including the UK – and found that only around 30% of consumers were happy for companies to share their data even after they had given consent. What’s more, only 35% of those polled had even heard of open banking capabilities. This points to issues surrounding data security, trust and awareness – all hurdles that can be overcome by banks, financial services providers and fintech innovators.

To make the most of open banking, banks will have to innovate and forge fintech partnerships with companies using their data sets. That will enable them to enhance existing products and leverage new fintech products being created with their data which will, in turn, benefit their customers.

This process of innovation has already largely begun, but if brands are to take full advantage of all that open banking has to offer, they still need to bridge the trust gap with consumers. We see consumer education, especially in the field of security, as having a key role to play in building confidence and consequently optimising uptake of open banking.

 

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