As a customer segment, SMEs offer vast potential. However, the profits of SME-focused banks have traditionally lagged those that specialize in other customers, often because of highly varied credit quality in the portfolio. Finding the optimal balance between providing a great customer experience and managing cost-to-serve has also proven to be difficult. As a result, many banks have not prioritized SMEs, forsaking the vast potential value, and leaving many SMEs feeling that their needs are ignored.
But now, new customer propositions and better service models enabled by technology are creating opportunities for much more lucrative returns. Fintechs are entering the business, as are the “big tech” firms, with innovative service models that reduce costs and increase revenue. Their offerings include traditional banking products, and also many other business services such as invoicing, payroll, tax preparation, and inventory management. Such “beyond-banking” ecosystem offerings target customers’ fundamental needs in a single easy-to-use service. Even better, they answer the primary challenge of SMEs, as identified by our survey of more than 500 business owners: giving entrepreneurs more time to focus on their core business activities.
Ecosystems are not just for tech companies. They also offer banks a unique and scalable solution to the competitive challenge. Banks have great advantages, including rich data and customers’ trust, to expand beyond their traditional limits into adjacent businesses. Already, some banks are succeeding at offering these services. But most banks are not.
In this article, we outline how banks can win a significant share of SME revenue pools and maximize returns using an innovative ecosystem proposition that addresses the needs of SMEs. Using several case studies and insights from our extensive research and ecosystem work, we describe what it takes to succeed in an SME ecosystem.