Accenture Banking Blog

The small-to-medium enterprise (SME) market is broad and often needs hand-holding, making it a difficult market for banks to serve profitably. COVID-19 complicates this reality, as SMEs need banks more than ever. To help, we published a research report called Bank of the Profitable SME Base that outlines strategies for banks that are looking to serve the SME market at scale during and after COVID-19.

Despite the breadth of this topic I want to focus specifically on a key theme that underpins every recommendation in the research report: balance.

The balancing act to serve SMEs: Finding the sweet spot

Banks serving the SME market face the same difficulties across the globe. They need to address these, as any perception that a bank does not support an SME’s needs might have long-lasting repercussions. But COVID-19 represents an opportunity for banks to become the resource that SMEs have always needed.

In order to successfully overcome the challenges of serving SMEs, banks will need to find the “just right” path between heroically helping their customers and safeguarding their own profitability. This is the Goldilocks sweet spot.

Balance self-serve digital tools and relationship managers

As with many technological advances, banks need to find a balance between digital tools and human insight. SMEs need more digital and self-service tools, akin to what customers get on the retail side. But they also need powerful insights from relationship managers (RMs) who, in turn, need effective technology to discover those insights.

Generally, the SME market is served by RMs. But this isn’t working, as only 25% of SMEs gave their RM a “very good” rating after COVID-19 hit. Remote advice is a potential solution, yet most banks believe it is unscalable and, thus, not the answer to the problem.

So neither SMEs nor banks are happy. How do we change that? To start, banks need to empower their RMs with more targeted and real-time insights and recommendations (I published a research report earlier this year on empowering RMs).

This connects back to segmentation. With more accurate and robust segmentation models, banks can leverage their data and tools like artificial intelligence to provide personalized advice at scale.

Balance costs

As I mentioned earlier, SMEs are expensive to serve. But there’s a reason cost is the third sweet spot and not the first. Vague or inconsistent segmentation, cumbersome digital tools and weak advice all lead to some SME customers being overserved (wasting money), while others are being underserved (missing out on potential revenue).

If banks can fix their segmentation problems and successfully implement digital tools that empower RMs, the cost issue will largely resolve itself. In the end, this will help them to spend more time on customers with the most potential.

Balance accurate segmentation

It’s an obvious point to make: Banks need to understand SMEs’ needs in order to serve them. But while the concept is obvious, the execution is more complex. Segmentation needs to be just right to work for customers and internal operations.

  • What exactly is a SME?
    • Issue: Banks need to define the term more clearly and accurately. SMEs are a vast market with varying needs that can be hard to group together. To deal with this, banks often manage their small-enterprise customers on the retail side and their medium-enterprise customers on the commercial side, creating a disparate experience and internal strategy.
    • Recommendation: Banks should hone their SME strategy by clearly and consistently defining their customers. “SME” is a broad term with differing needs: for example, 52% of sole traders are satisfied with simple financial products and services, while only 14% of medium-sized SMEs would regard that as adequate. Which brings me to the importance of accurate segmentation…
  • How do you accurately segment SMEs?
    • Issue: 85% of banks we surveyed use revenue as their segmentation foundation. Sometimes, this is augmented with other criteria, such as loan exposure, owner’s wealth or EBITDA. But this approach doesn’t fully capture the differing needs and characteristics of SME customers.
    • Recommendation: Segmentation is the only way for banks to understand their SME customers at speed and scale. Banks need to bring in more sophisticated elements like propensity, digital maturity and behavior when developing their segmentation models. High-level needs are the same as they’ve always been: SMEs need to set up, grow and expand their business. But their underlying needs have changed: How SMEs want to interact and want more digital channels, for example.

Balance partnerships

According to our survey of 1,300 SMEs, 42% believe alternative providers can offer a better service than traditional banks. This is a concerning number. Should the right fintech come along to meet the needs that banks aren’t fulfilling, SMEs are ready to jump ship.

Fintechs often have modern and innovative products, but they can have difficulty gaining customers and trust without being a part of a larger bank. On the other side, large banks have trouble pivoting and innovating quickly. Partnerships can solve both issues. Banks will need to balance exactly how much they should rely on partnerships versus doing things internally.

Four key traits banks need to succeed

In order to succeed at these balancing acts, banks should embody four key traits: empathy, responsiveness, focus and efficiency. I want to focus on empathy.

The right pricing helps banks achieve empathy; so do accurate segmentation, useful digital tools and empowered RMs. SMEs right now are looking for help to manage COVID-19. Taking the time to truly understand them is empathetic. Providing easy-to-use digital tools is empathetic. Useful and personalized insights and advice are empathetic.

Overall, I’ve talked a lot recently about banks taking the opportunity of COVID-19 to become the heroes. After being designated the villians during the 2008 recession, helping SMEs is another way for banks to change that perception. The overall strategy is relatively straightforward. What will differentiate winners and losers, however, is execution. That’s where the other three traits—responsiveness, focus and efficiency—come into play.

Email me to talk about your SME strategy, and remember to read our full research report on the SME market in banking.

Disclaimer: This content is provided for general information purposes and is not intended to be used in place of consultation with our professional advisors. Copyright© 2022 Accenture. All rights reserved. Accenture and its logo are registered trademarks of Accenture.