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Meeting The Unique Challenges Of SMB Banking Through Digital Transformation

Small and medium-sized businesses, or SMBs, are the backbone of the U.S. economy, accounting for nearly 44% of economic activity, yet their banking needs are not being fully met. Only a third of SMBs feel their primary bank understands their needs or appreciates their business.

Smartphones are revolutionizing almost every aspect of life, but for SMB owners, banks are not yet meeting their digital expectations. Our company's 2019 survey found that 90% said they want to bank online, while only 41% actually do so. According to The Financial Times, this market dislocation amounts to an estimated $2 trillion left on the table.

Fintechs are seizing on select opportunities, such as unsecured small-dollar lending, but banks remain in the strongest position to provide comprehensive and personalized solutions. Based on experience with financial institutions globally, our company found that SMBs seek a holistic view of their actual and planned financial activities and tailored insights that anticipate their needs. For banks to be trusted advisors for SMBs, they must develop a deeper understanding of each customer's needs and deliver timely and relevant advice in a way that feels authentic. There remains, however, a perceived gap between what banks offer and what SMBs want.

The Unique Challenges Of SMB Banking

Small businesses have unique challenges and needs, yet the traditional bank business model and cost structure don't allow for custom solutions and advice for every customer. Our research suggests there are several main obstacles for banks to truly understand the needs of individual SMBs and provide tailored offerings:

1. Banks typically hold only a subset of an SMB's financial accounts and, therefore, may not have the data and context to deliver personalized advice.

2. Small-business banking data may be kept in different data silos with uneven levels of data quality and availability.

3. Banks have underinvested in the SMB segment when compared to the larger consumer segment or the more profitable on a unit basis commercial segment. In some cases, banks have simply repurposed consumer-designed products for the SMB segment, thereby failing to meet their unique needs.

4. The current customer management relationship model makes it uneconomic for banks to personalize their solutions for all SMBs in the portfolio. Consequently, relationship managers prioritize the most profitable relationships. In the drive for greater efficiency, relationship managers portfolio sizes have grown, thereby exacerbating the challenge of personalizing interactions.

These issues have created a challenging situation for banks to drive organic growth in the SMB market. Complicating the picture is the sentiment among some SMBs that their bank doesn't understand their needs, resulting in lower engagement. Our survey revealed that while more than half of SMB owners know their bank offers financial advice, only a quarter of them actually use it.

Rethinking The Customer Relationship

These challenges can't be addressed through simply rolling out another product or campaign, but rather requires a new way of operating. The answer lies in re-thinking how bankers interact with customers.

Creating a streamlined, digital-enabled account opening process, from application through fulfillment, remains at the top of the list for many banks. More than simply digitizing the account opening process, banks should incorporate complete onboarding to ensure customers are utilizing products and taking advantage of capabilities, such as digital solutions offered through the bank. This is key to delivering a "quality" account rather than, simply, a new account. While these are vital processes, cross-channel digital account opening and onboarding are rapidly becoming table stakes in meeting customer expectations and fail to create true differentiation.

Banks also need to enhance their "next best action," or NBA, models to provide suggested actions to relationship managers through their customer relationship management, or CRM, platform. By combining effective look-alike modeling with relationship manager outreach, NBA processes can be effective in increasing response rates to service and sales suggestions. A typical limitation of NBA models, however, is their inability to provide real-time and contextual interactions. Consequently, many banks are also developing and enhancing "trigger" programs that alert a relationship manager when a relevant event, such as receipt of an unusually large deposit, has recently occurred.

While these process improvements are important to improve the customer experience and banker productivity, truly exceeding expectations of the SMB segment requires a deeper understanding of their cash flows and delivering timely insights to improve their financial well-being. To achieve a potential breakthrough, banks need to better anticipate needs and provide tailored advice to all customers, not just the most profitable ones. A significant hurdle, though, is delivering this advice at scale without creating a significantly higher delivery model cost structure.

The breakthrough lies in analyzing customer transaction data in near real-time using advanced data and analytics to deliver intelligent interactions. By understanding customer cash flows, banks can provide a view of upcoming planned activity and highlight for customers when they may have an issue.

Personalized insights and advice that may take the form of "potential upcoming low balance issue" or "missing expected deposit" should be provided directly to customers through the digital experience. A curated set of insights tailored for relationship managers can be available through the CRM platform, highlighting which customers are in a situation where they would benefit from outreach.

Most importantly, banks don't need to undergo multi-year SMB data transformation to capitalize on their data and show meaningful business impact. With today's analytics capabilities, banks can seek to provide business impact and value concurrently with a data transformation effort so that you are demonstrating returns along the way.

SMBs represent the ideal segment to bring together the strength of the digital channel to understand customer behavior with the empathy of the relationship manager channel to intervene when most valued by the customer. Banks that are willing to take the leap and capitalize on this capability will be rewarded with improved customer satisfaction, higher engagement and deeper, more profitable SMB relationships.

This is Article Source is from : https://www.forbes.com/sites/forbesfinancecouncil/2020/03/12/meeting-the-unique-challenges-of-smb-banking-through-digital-transformation/#32df5c638396